colorado assignment for benefit of creditors

Business Law Today

November 2015

Assignment for the Benefit of Creditors: Effective Tool for Acquiring and Winding Up Distressed Businesses

David s kupetz.

Nov 15, 2015

12 min read

• Assignments for the benefit of creditors are an alternative to the formal burial process of a Chapter 7 bankruptcy.
• The ABC process may allow the parties to avoid the delay and uncertainty of formal federal bankruptcy court proceedings.
• ABCs can be particularly useful when fast action and distressed transaction and/or industry expertise is needed in order to capture value from the liquidation of the assets of a troubled enterprise.

An assignment for the benefit of creditors (ABC) is a business liquidation device available to an insolvent debtor as an alternative to formal bankruptcy proceedings. In many instances, an ABC can be the most advantageous and graceful exit strategy. This is especially true where the goals are (1) to transfer the assets of the troubled business to an acquiring entity free of the unsecured debt incurred by the transferor and (2) to wind down the company in a manner designed to minimize negative publicity and potential liability for directors and management.

The option of making an ABC is available on a state-by-state basis. During the meltdown suffered in the dot-com and technology business sectors in the early 2000s, California became the capital of ABCs. In discussing assignments for the benefit of creditors, this article will focus primarily on California ABC law.

Assignment Process

The process of an ABC is initiated by the distressed entity (assignor) entering an agreement with the party which will be responsible for conducting the wind-down and/or liquidation or going concern sale (assignee) in a fiduciary capacity for the benefit of the assignor’s creditors. The assignment agreement is a contract under which the assignor transfers all of its right, title, interest in, and custody and control of its property to the third-party assignee in trust. The assignee liquidates the property and distributes the proceeds to the assignor’s creditors.

In order to commence the ABC process, a distressed corporation will generally need to obtain both board of director authorization and shareholder approval. While this requirement is dictated by applicable state law, the ABC constitutes a transfer of all of the assignor’s assets to the assignee, and the law of many states provides that the transfer of all of a corporation’s assets is subject to shareholder approval. In contrast, shareholder approval is not required in order for a corporation to file a petition commencing a federal bankruptcy case. In some instances, the shareholder approval requirement for an ABC can be an impediment to the quick action ordinarily available in the context of an ABC, especially when a public company is involved as the assignor.

The board of directors of an insolvent company (a company with debt exceeding the value of its assets) should be particularly attentive to avoiding harm to the value of the enterprise and the interests of creditors. Under Delaware law, for example, the obligation is to maximize the value of the enterprise, which should result in protecting the interests of creditors.

It is not unusual for the board of a troubled company to determine that a going concern sale of the company’s business is in the best interests of the company and its creditors. However, generally the purchaser will not acquire the business if the assumption of the company’s unsecured debt is involved. Further, often the situation is deteriorating rapidly. The company may be burning through its cash reserves and in danger of losing key employees who are aware of its financial difficulties, and creditors of the company are pressing for payment. Under these circumstances, the company’s board may conclude than an ABC is the most appropriate course of action.

The Alternative of Voluntary Federal Bankruptcy Cases

Chapter 7 bankruptcy provides a procedure for the orderly liquidation of the assets of the debtor and the ultimate payment of creditors in the order of priority set forth in the U.S. Bankruptcy Code. Upon the filing of a Chapter 7 petition, a trustee is appointed who is charged with marshaling all of the assets of the debtor, liquidating the assets, and eventually distributing the proceeds of the liquidation to the debtor’s creditors. The process can take many months or even years and is governed by detailed statutory requirements.

Chapter 11 of the Bankruptcy Code provides a framework for a formal, court-supervised business reorganization. While the primary goals of Chapter 11 are rehabilitation of the debtor, equality of treatment of creditors holding claims of the same priority, and maximization of the value of the bankruptcy estate, Chapter 11 can be used to implement a liquidation of the debtor. Unlike the traditional common law assignment for the benefit of creditors (assignments are governed by state law and may differ from state to state), Chapter 7 and Chapter 11 bankruptcy cases are presided over by a federal bankruptcy judge and are governed by a detailed federal statute.

Advantages of an ABC

The common law assignment by simple transfer in trust, in many cases, is a superior liquidation mechanism when compared to using the more cumbersome statutory procedures governing a formal Chapter 7 bankruptcy liquidation case or a liquidating Chapter 11 case. Compared to bankruptcy liquidation, assignments may involve less administrative expense and are a substantially faster and more flexible liquidation process. In addition, unlike a Chapter 7 liquidation, where generally an unknown trustee will be appointed to administer the liquidation process, in an ABC the assignor can select an assignee with appropriate experience and expertise to conduct the wind-down of its business and liquidation of its assets. In prepackaged ABCs, where an immediate going concern sale will be implemented, the assignee will be involved prior to the ABC going effective. Further, in states that have adopted the common law ABC process, court procedures, requirements, and oversight are not involved. In contrast, in bankruptcy cases, the judicial process is invoked and brings with it additional uncertainty and complications, including players whose identity is unknown at the time the bankruptcy petition is filed, expense, and likely delay.

In situations where a company is burdened with debt that makes a merger or acquisition infeasible, an ABC can be the most efficient, effective, and desirable means of effectuating a favorable transaction and addressing the debt. The assignment process enables the assignee to sell the assignor’s assets free of the unsecured debt that burdened the company. Unlike bankruptcy, where the publicity for the company and its officers and directors will be negative, in an assignment, the press generally reads “assets of Oldco acquired by Newco,” instead of “Oldco files bankruptcy” or “Oldco shuts its doors.” Moreover, the assignment process removes from the board of directors and management of the troubled company the responsibility for and burden of winding down the business and disposing of the assets.

From a buyer’s perspective, acquiring a going concern business or the specific assets of a distressed entity from an Assignee in an ABC sale transaction provides some important advantages. Most sophisticated buyers will not acquire an ongoing business or substantial assets from a financially distressed entity with outstanding unsecured debt, unless the assets are cleansed either through an ABC or bankruptcy process. Such buyers are generally unwilling to subject themselves to potential contentions that the assets were acquired as part of a fraudulent transfer and/or that they are a successor to or subject to successor liability for claims against the distressed entity. Buying a going concern or specified assets from an assignee allows the purchaser to avoid these types of contentions and issues and to obtain the assets free of the assignor’s unsecured debt. Creditors of the assignor simply must submit proofs of claim to the assignee and will ultimately receive payment by the assignee from the proceeds of the assignment estate. Moreover, compared to a bankruptcy case, where numerous unknown parties (e.g., the bankruptcy trustee, the bankruptcy judge, the U.S. trustee, an unsecured creditors’ committee, and possibly others) will become part of the process and where court procedures and legal requirements come into play, a common law ABC allows for flexibility and quick action.

From the perspective of a secured creditor, in certain circumstances, instead of being responsible for conducting a foreclosure proceeding, the secured creditor may prefer to have an independent, objective third party with expertise and experience liquidating businesses of the type of the distressed entity act as an assignee. There is nothing wrong with an assignee entering into appropriate subordination agreements with the secured creditor and liquidating the assignor’s assets and turning the proceeds over to the secured creditor to the extent that the secured creditor holds valid, perfected liens on the assets that are sold.

As a common law liquidation vehicle that has been around for a very long time, ABCs have been used over the years for all different types of businesses. In the early 2000s, in particular, ABCs became an especially popular method for liquidating troubled dot-com, technology, and health-care companies. In large part, this was simply a reflection of the distressed nature of those industries. At the same time, ABCs allow for quick and flexible action that frequently is necessary in order to maximize the value that might be obtained for a business that is largely dependent on the know-how and expertise of key personnel. An ABC may provide a vehicle for the implementation of a quick transaction which can be implemented before key employees jump from the sinking ship.

The liquidation process in an ABC can take many different forms. In some instances, negotiations between the buyer and the assignee commence before the assignment is made and a prepackaged transaction is agreed on and implemented contemporaneously with the execution of the assignment. This type of turnkey sale can effectively allow the purchaser of a business to acquire the business without assuming the former owner’s unsecured debt in a manner where the business operations continue uninterrupted.

In certain instances, the assignee may operate the assignor’s business post-ABC with the intent of selling the business as a going concern even if an agreement has not been reached with a purchaser. However, the assignee must weigh the risks and costs of continuing to operate the business against the anticipated benefits to be received from a going concern sale.

In many cases, the distressed enterprise has already ceased operations prior to making the assignment or will cease its business operations at the time the ABC is entered. In these cases, the assignee may be selling the assets in bulk or may sell or license certain key assets and liquidate the other assets through auctions or other private or public liquidation sale methods. At all times, the assignee is guided by its responsibility to act in a reasonable manner designed to maximize value obtained for the assets and ultimate creditor recovery under the circumstances.

Disadvantages of an ABC

As discussed above, an ABC can be an advantageous means for a buyer to acquire assets and/or a business in financial distress. However, unlike in a bankruptcy case, because the ABC process in California is nonjudicial, there is no court order approving the sale transaction. As a result, a buyer who requires the clarity of an actual court order approving the sale will not be able to satisfy that desire through an ABC transaction. That being said, the assignee is an independent, third-party fiduciary who must agree to the transaction and is responsible for the ABC process. The buyer in an ABC transaction will have an asset purchase agreement and other appropriate ancillary documents that have been executed by the assignee.

Unlike in a formal federal bankruptcy case, executory contracts and leases cannot be assigned in an ABC without the consent of the counter party to the contract. Accordingly, if the assignment of executory contracts and/or leases is a necessary part of the transaction and, if the consent of the counter parties to the contracts and leases cannot be obtained, an ABC transaction may not be the appropriate approach. Further, ipso facto default provisions (allowing for termination, forfeiture, or modification of contract rights) based on insolvency or the commencement of the ABC are not unenforceable as they are in a federal bankruptcy case.

Secured creditor consent is generally required in the context of an ABC. There is no ability to sell free and clear of liens, as there is in some circumstances in a federal bankruptcy case, without secured creditor consent (unless the secured creditor will be paid in full from sale proceeds). Moreover, there is no automatic stay to prevent secured creditors from foreclosing on their collateral if they are not in support of the ABC. The lack of an automatic stay is generally not significant with respect to unsecured creditors since assets have been transferred to the assignee and unsecured creditors claims are against the assignor.

While there is a risk of an involuntary bankruptcy petition being filed against the assignor, experience has shown that this risk should be relatively small. Further, when an involuntary bankruptcy petition is filed, it is generally dismissed by the bankruptcy court because an alternative insolvency process (the ABC) is already underway. In the context of an out-of-court workout or liquidation, there is always the risk that an involuntary bankruptcy petition may be filed against the debtor. Such a risk is substantially less, however, in connection with an assignment for the benefit of creditors because the bankruptcy court is likely to abstain when a process (the assignment) is already in place to facilitate liquidation of the debtor’s assets and distribution to creditors. A policy is in place that favors allowing general assignments for the benefit of creditors to stand.

Distribution Scheme in ABCs

ABCs in California are governed by common law and are subject to various specific statutory provisions. In states like California, where common law (with specific statutory supplements) governs the ABC process, the process is nonjudicial. An assignee in an assignment for the benefit of creditors serves in a capacity that is analogous to a bankruptcy trustee and is responsible for liquidating the assets of the assignment estate and distributing the net proceeds, if any, to the assignor’s creditors.

Under California law, an assignee for the benefit of creditors must set a deadline for the submission of claims. Notice of the deadline must be disseminated within 30 days of the commencement of the assignment and must provide not less than 150 and not more than 180 days’ notice of the bar date. Once the assignee has liquidated the assets, evaluated the claims submitted, resolved any pending litigation to the extent necessary prior to making distribution, and is otherwise ready to make distribution to creditors, pertinent statutory provisions must be followed in the distribution process. Generally, California law ensures that taxes (both state and municipal), certain unpaid wages and other employee benefits, and customer deposits are paid before general unsecured claims.

Particular care must be taken by assignees in dealing with claims of the federal government. These claims are entitled to priority by reason of a catchall-type statute which entitles any agency of the federal government to enjoy a priority status for its claims over the claims of general unsecured creditors. In fact, the federal statute provides that an assignee paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government. As a practical result, these payments must be prioritized above those owed to all state and local taxing agencies.

In California, there is no comprehensive priority scheme for distributions from an assignment estate like the priority scheme in bankruptcy or priority schemes under assignment laws in certain other states. Instead, California has various statutes which provide that certain claims should receive priority status over general unsecured claims, such as taxes, priority labor wages, lease deposits, etc. However, the order of priority among the various priority claims is not clear. Of course, determining the order of priority among priority claims becomes merely an academic exercise if there are sufficient funds to pay all priority claims. Secured creditors retain their liens on the collateral and are entitled to receive the proceeds from the sale of their collateral up to the extent of the amount of their claim. Thereafter, distribution in California ABCs is made in priority claims, including administrative expenses, obligations owing to the federal government, priority wage and benefit claims, state tax claims, including interest and penalties for sales and use taxes, income taxes and bank and corporate taxes, security deposits up to $900 for the lease or rental of property, or purchase of services not provided, unpaid unemployment insurance contribution, including interest and penalties, and general unsecured claims. Interest is paid on general unsecured claims only after the principal is paid for all unsecured claims submitted and allowed and only to the extent that a particular creditor is entitled under contract or judgment to assert such claim for interest.

If there are insufficient funds to pay the unsecured claims in full, then these claims will be paid pro rata. If unsecured claims are paid in full, equity holders will receive distribution in accordance with their liquidation rights. No distribution to general unsecured creditors should take place until the assignee is satisfied that all priority claims have been paid in full.

Assignments for the benefit of creditors are an alternative to the formal burial process of a Chapter 7 bankruptcy. Moreover, ABCs can be particularly useful when fast action and distressed transaction and/or industry expertise is needed in order to capture value from the liquidation of the assets of a troubled enterprise. The ABC process may allow the parties to avoid the delay and uncertainty of formal federal bankruptcy court proceedings. In many instances involving deteriorating businesses, management engages in last-ditch efforts to sell the business in the face of mounting debt. However, frequently the value of the business is diminishing rapidly as, among other things, key employees leave. Moreover, the parties interested in acquiring the business and/or assets will move forward only under circumstances where they will not be taking on the unsecured debt of the distressed entity along with its assets. In such instances, especially when the expense of a Chapter 11 bankruptcy case may be unsustainable, an assignment for the benefit of creditors can be a viable solution.

Sulmeyerkupetz

David Kupetz specializes in troubled transactions, crisis avoidance consultation, workouts, restructurings, reorganizations, bankruptcies, receiverships, assignments for the benefit of creditors, municipal debt adjustment and...

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Assignments for the Benefit of Creditors – an often-overlooked state law alternative to Chapter 7 bankruptcy

For some folks the three letters ABC are a reminder of elementary school and singing a song to learn the alphabet.  For others, it is a throw back to the early 70’s when the Jackson Five and its lead singer Michael, still with his adolescent high voice, sang a catchy love song.  Then there is a select group of people in the world of corporate workouts, liquidations and bankruptcies, who know those three letters to stand for the A ssignment for the B enefit of C reditors – a voluntary state law liquidation process that may arguably offer a hospitable and friendly alternative to federal bankruptcy.  This article is a brief summary of this potentially attractive alternative to bankruptcy.

 The Assignment for the Benefit of Creditors (“ABC”), also known as a General Assignment, is a state law procedure governed by state statute or common law.  Over 30 states have codified statutes, and the remainder of states rely on common law.  See Practical Issues in Assignments for the Benefit of Creditors , by Robert Richards & Nancy Ross, ABI Law Review Vol. 17:5 (2009) at p. 6 (listing state statutes).  In some states, the statutory authority and common law can coexist.  At its most basic, the ABC process involves the transfer of all assets by a financially distressed debtor (the assignor) to an individual or entity (the assignee) with fiduciary obligations who then liquidates the assets and pays creditors.  The assignment agreement is essentially a contract involving the transfer and control of property, in trust, to a third party.  In some states that have enacted a statute, state courts may supervise the process (and at different levels of involvement depending on the statute).  The statutory scheme in other states such as California and Nevada, and in states where common law govern, do not provide for judicial oversight..  

ABCs are promoted as less expensive and more flexible than a chapter 7 liquidation and may proceed substantially faster than bankruptcy liquidation. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 8 (citations omitted).  In addition, the ABC process may provide four other noteworthy benefits not available in a bankruptcy.  First, the liquidating company chooses the assignee, there is no appointment of a random trustee or formal election required like in a bankruptcy.  This freedom of choice allows the assignor to evaluate the reputation and experience of proposed assignees, as well as select an assignee with familiarity in the nature of the assignor’s business and/or with more expansive contacts in the industry to facilitate the sale/liquidation.  Second, the ABC process generally falls under the radar of the media (particularly in states that do not require court supervision), and the assignor may avoid publicity, often negative, that can be associated with bankruptcy proceedings.  Third, with an ABC, the assignee has the ability to sell the assets without the imposition of potentially cumbersome requirements of Section 363 of the Bankruptcy Code, and in some cases, can conduct a sale the same day as the general assignment.  Finally, the ABC process generally authorizes the sale of assets free of unsecured creditor debt.  In essence, in an ABC, a company buying assets from a distressed business does not acquire the debt of the assignor.

On the down side, ABCs do not provide the protection of the automatic stay that is triggered upon the filing of a bankruptcy petition.  In some situations, the debtor entity needs to stop the pursuit of creditors immediately, and a bankruptcy proceeding will supply this relief.  Unlike bankruptcy, the sale through an ABC: i) is not free and clear of liens; ii) unexpired leases cannot be assumed and assigned without the consent of the contract counter-party; and iii) insolvency can trigger a default under an unexpired lease or executory contract. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 20. In general, an ABC is not a good choice for debtors that have secured creditors that do not consent because there is no mechanism for using cash collateral or transferring assets free and clear of liens without the secured creditors’ consent.  In cases where junior lienholders are out of the money, there is no incentive for those creditors to voluntarily release their liens.  In addition, while unsecured creditors do not have to consent to the general assignment for it to be valid, choosing this alternative forum may cause concern for creditors (particularly those used to the transparency of a court-supervised bankruptcy or receivership proceeding) and invite the filing of an involuntary bankruptcy. Therefore, it is prudent to involve major creditors in the process, and perhaps even in the pre-assignment planning. In addition, if an involuntary petition is filed, the assignee could request that the bankruptcy court abstain in order to proceed with the ABC.

Using the ABC state process in lieu of filing for bankruptcy in federal court may result in a more streamlined, efficient liquidation process that is less expensive and likely completed quicker than a federal bankruptcy proceeding.  In some jurisdictions, such as New Jersey, workout professionals note anecdotally that corporate clients fare better under this state law alternative rather than the lengthy, more complicated federal bankruptcy proceedings.

Many bankruptcy professionals are unfamiliar with the procedures of ABC and are reluctant to recommend it as a method for liquidating assets and administering claims.  This lack of familiarity may be a disservice to potential clients.  

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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• Assignment for Benefit of Creditors

Assignment for Benefit of Creditors vs. Chapter 7 Bankruptcy

Assignment for benefit of creditors is also called general assignment, or abbreviated to ABC. It is generally referred to as an alternative to bankruptcy. An ABC involves a company assigning all of its assets to a third party who takes title to the company’s assets in trust, then will sell those assets and distribute the proceeds of the sales to the company’s creditors in priority as determined by  Florida State law  under 727.114 – pack lunch, it’s a long read. While this might sound like a  Chapter 7 liquidation bankruptcy , there are some key differences in how the two processes are conducted and in their end results.

• And ABC does not discharge a company’s debts. Full stop. Only a bankruptcy fully discharges all debts at the end of the procedure.
• There is no automatic stay of collections actions or lawsuits which would be covered by the automatic stay in a bankruptcy. These actions may continue and new actions may be filed or initiated.
• Board and shareholder approval is generally required for corporations since it involves transferring the entirety of the company’s assets and property. LLCs, LLP’s, partnerships, and sole proprietorships may have an easier time entering into a general assignment.
• The assignee acts much the same way as the US trustee, however the assignee is selected by the company that is liquidating, and the US trustee is appointed by the court. Consequently the disposition of property and payment of creditors can be accomplished without court approval.

When a liquidation is in the company’s best interest, the initial impulse is to get it over with as fast as possible. However this may not be in your company’s best interest, though it may be in the best interests of your creditors. Assignees are generally picked for their knowledge of that specific area of business, and maybe trusted above the US trustee in disposing of assets with an eye to getting the highest dollar value for them. There are also no asset exemptions allowed under a general assignment. Filing for Chapter 7 may be more expensive, and take a little longer, but there are also protected asset classes that cannot be attached by creditors when undergoing a filing of bankruptcy.

As you can see, this ABC is not as easy as 123. Filing for bankruptcy is not easy either, and the process can take longer than a general assignment. Before considering an assignment for benefit of creditors in order to settle your company’s debts, I would urge you to take advantage of a  free consultation at Van Horn Law group . Bankruptcy is not a dirty word, and you may even end up the better for it in terms of obtaining credit in order to open a new business and start over. Being able to shed all of your company’s debts after emerging from bankruptcy, will leave you free and clear. Give us a call, and we can figure out what is best for you and for your business.

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Assignment for the Benefit of Creditors

A symphony of wall street smarts … main street sense™, skillfully and judiciously maximizing value for all stakeholders, a symphony of wall street smarts … main street sense™ assignment for the benefit of creditors services (abc) general assignment | creditor assignment.

An Assignment for the Benefit of Creditors (ABC) or General Assignment/Creditor Assignment can be a prudent alternative to bankruptcy for maximizing value for troubled private and public companies and their creditors.

An Assignment for the Benefit of Creditors (ABC) is a legal process in which a debtor assigns all of its assets to an independent third party, called an assignee, that’s us, to liquidate the assets and pay off the creditors. This process is a bankruptcy alternative, and it allows a debtor to avoid the lengthy and costly bankruptcy process while still getting relief from creditors.

For over 40 years in assignments worldwide, Equity Development Systems, Ltd has brought A Symphony of Wall Street Smarts … Main Street Sense ™ in skillfully guiding and judiciously representing business owners, creditors, investors, attorneys and law firms, and myriad other stakeholders in the disposition of their troubled accounts and we have successfully managed and generated Billions of Dollars  for our global clientele in the conversion of their distressed assets to cash.

From National Priority List Superfund Sites—to a Decommissioned Nuclear-Powered Aircraft Carrier—to the Pencils-on-the-Desk—we handle it all, and we have successfully managed and generated Billions of Dollars  for our global clientele in the conversion of their distressed assets to cash.

Award-Winning Services Our award-winning Receivership Services have earned us the distinction of being the only Court-Appointed Receiver in the country that the United States Environmental Protection Agency (USEPA) allows to conduct Asset Recovery and Divestiture Services on active Superfund Sites. We are pleased to serve as Court-Appointed Keepers (Asset Recovery) for the U.S. Marshals Service for federal court seizures of assets under admiralty jurisdiction.

We handle it all commercial | industrial | residential real estate developments | hoa and golf communities/resorts | environmentally impaired real and moveable property | hospitality/gaming | shipyards/admiralty/maritime | aviation (fixed and rotor) | automotive (manufacturing and retail) | heavy industrial manufacturing | oil & gas/minerals | and more..., 24/7/365 onsite crisis / interim / turnaround management teams our turnaround management and restructuring teams marshal onsite 24/7/365 throughout the world to provide the complete spectrum of crisis/interim and turnaround management services., testimonials, the actions undertaken on behalf of signal capital have established a level of confidence that has resulted in epa allowing signal to dispose of movable property on the facility in a way that most secured creditors would ordinarily not enjoy. in fact, i know of no other analogous situation where the epa region 6 removal program has cooperated with a secured creditor to the extent it has due to your efforts., senior attorney.

USEPA, Region 6

Such a relationship generally does not develop whereby EPA would permit a secured creditor to liquidate uncontaminated movable property due to the realistic concern that such actions would aggravate existing environmental problems or would interfere with EPA’s removal action. It is not at all unusual that in EPA’s proper exercise of its CERCLA responsibilities such accommodations are flatly rejected.

Notwithstanding that general approach, you have demonstrated a level of responsibility and credibility that has warranted a different approach for epa in this matter..

USEPA , Region 6

Assignment for the Benefit of Creditors Services

Maximizing value for all stakeholders.

An Assignment for the Benefit of Creditors (ABC) is a legal process in which a debtor assigns all of its assets to an independent third party, called an assignee, to liquidate the assets and pay off the creditors. This process is a bankruptcy alternative, and it allows a debtor to avoid the lengthy and costly bankruptcy process while still getting relief from creditors.

The debtor will appoint an assignee, that’s us, who will take possession of all the assets of the debtor and will be responsible for liquidating them and distributing the proceeds to the creditors according to the priority of their claims. We will then be responsible for identifying, collecting, and liquidating all assets, and for making payments to the creditors.

The ABC process is usually faster than bankruptcy and it allows the debtor to have more control over the liquidation process. It also provides a way for the debtor to avoid the negative impact of a bankruptcy filing on its credit rating. However, there are also some limitations to the ABC process, such as a lack of protection from certain types of claims and a lack of automatic stay to halt litigation against the debtor.

It’s important to note that the laws regarding ABC vary state by state, and the process may have different names depending on the location.

The process of an Assignment for the Benefit of Creditors is initiated by the distressed entity (assignor) entering into an agreement with the assignee responsible for conducting the wind-down and/or liquidation or going concern sale in a fiduciary capacity for the benefit of the assignor’s creditors. The assignment agreement is a contract under which the assignor transfers all of its right, title, interest in, and custody and control of its property to the assignee in trust. The assignee divests the property and distributes the proceeds to the assignor’s creditors.

Our award-winning services have earned us the distinction of being the only Court-Appointed Receiver/Assignee in the country that the United States Environmental Protection Agency (USEPA) allows to conduct such services on active Superfund Sites.

We are pleased to serve as Court-Appointed Keepers (Assignees) for the U.S. Marshals Service for federal court seizures of assets under admiralty jurisdiction.

An Assignment for the Benefit of Creditors requires highly-trained—highly skilled—highly credentialed—highly experienced special assets and special situations transitional management, valuation, and disposition experts with decades of proven experience and unimpeachable credibility.

For over 40 years in hundreds of assignments worldwide, Equity Development Systems, Ltd. has skillfully guided and judiciously represented business owners, creditors, investors, attorneys and law firms, and myriad other stakeholders in the disposition of their troubled accounts.

We specialize in handling the disposition of complex and highly-contentious special assets and special situations: Environmentally Impaired Real and Moveable Property (Superfund and Brownfields Sites), Hospitality, Gaming, Resorts,  Shipyards /Admiralty/Maritime, Aviation (Fixed and Rotor), Automotive (Manufacturing and Retail), Heavy Industrial, Oil & Gas/Minerals, Commercial and High-Value Residential Real Estate.

No assignment is too small or too large for EDS.

The process of an Assignment for the Benefit of Creditors

The basic process in an Assignment for the Benefit of Creditors is that the business (Assignor) turns over its assets, both real and moveable, to an independent third-party neutral (Assignee [EDS]) who is the responsible fiduciary for divesting the assets and settling with creditors.

An Assignment for the Benefit of Creditors is a voluntary and arms-length transaction that provides a speedy, orderly disposition and equitable liquidation of the firm’s assets and subsequent distribution to its creditors. It is similar to a Chapter 7 liquidation process but is far quicker and much less expensive and, therefore, generally derives a larger distribution to all creditors.

EDS experts marshal on-site 24/7/365 throughout the nation to secure and operate troubled accounts facing operational or financial challenges. Our experts work diligently with all stakeholders to preserve, protect, maintain, and enhance the enterprise value of the business and business assets that might otherwise be lost during costly and fruitless bankruptcies.

Assets Held in Trust:  By operation of law, all assets are held in trust upon acceptance of the Assignment. These assets and the funds realized therefrom are protected against creditor claims. The assets are then liquidated, and the proceeds, less administrative expenses, are distributed to all creditors according to their lawful priority class. The order of priority is very similar to that used by the Trustee in a bankruptcy proceeding.

Duties of the Assignee:  The Assignee has similar duties to a Trustee in Bankruptcy. The Assignee is charged with acting in a business-like manner in the disposition of the assets. The Assignee has considerable flexibility in the methods used and does not have to obtain consent or have a hearing to ratify his or her actions.

Fees:  Unlike Bankruptcy, no upfront fees are required. The fee amount is determined before signing the documents and becoming part of the General Assignment agreement. The fees for the Assignee are paid as an administrative expense from the proceeds recovered.

Advantages of an Assignment for the Benefit of Creditors or Creditor/General Assignment:  An Assignment does not require court adjudication or consent in most states, nor does it require the consent of creditors. It does not have the stigma of bankruptcy and frequently benefits the company’s principals, who nearly always guarantee the lender obligations of the company. Because an Assignment avoids the administrative procedures that govern bankruptcy, there is a considerable reduction in the cost of disposition and the time necessary to sell the assets. The consequence is greater flexibility in divestiture methods and options, resulting in greater returns for creditors. An Assignment for the Benefit of Creditors is an option that should always be considered as an option to bankruptcy.

EDS’s unparalleled level of Assignment for the Benefit of Creditors expertise is recognized and appreciated nationwide.        

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Assignment for the Benefit of Creditors: A Remedy to Avoid Bankruptcy

May 24, 2021

When it comes to California contract law, ABC contracts are a well-established tool that can help individuals and entities avoid a formal bankruptcy filing. “ABC” stands for “Assignment for the Benefit of Creditors,” and the term describes a contract in which an economically troubled “Assignor” transfers control of its assets and property to an independent third party. This third party is called the “Assignee,” and they liquidate and wind-up the entity. 

How Do ABCs Work?

When a business is struggling financially without much hope of recovery, bankruptcy isn’t the only option. ABC contracts can help the entity avoid traditional or formal bankruptcy proceedings. 

These contracts work when there are significant assets that are ready to be liquidated. If the entity doesn’t have valuable assets, then an ABC contract is not typically a realistic option. However, in these circumstances where there are significant assets, the Assignor transfers all custody, control, and title to a neutral third party. 

This neutral third party navigates and facilitates the liquidation of assets and transfer of funds to the assignor’s creditors. 

Benefits of Using an ABC

There are several benefits to using an ABC. 

One of the biggest factors for most entities is avoiding Chapter 11 or Chapter 7 bankruptcy. Because ABCs are governed by state law, not federal law, struggling companies can pursue an ABC contract on their own without going through the courts. 

Working with a neutral third party can take away a lot of the stress that accompanies economic difficulties. Instead of trying to liquidate assets and transfer funds to creditors, struggling companies can pass those challenges on to the Assignee. 

Lastly, Assignors get to choose their own Assignees. That means that they are not at the mercy of the court to assign a bankruptcy trustee they don’t know or trust. When a company pursues an ABC contract, they maintain more control over process and costs. 

Going through financial difficulties can lead to feelings of helplessness and a loss of control, but this is something that you continue to have control over. 

Responsibilities of an Assignee

When the Assignor assigns property to the Assignee, that can include all corporate property, both tangible and intangible, as well as accounts, rights, and credits, including law and equity credits. 

The Assignee liquidates and sells these assets. (Note that the Assignee cannot sell the corporation or the stock.) Importantly, the corporation continues to exist during this process, even though there are no assets left by the end of the process.

The Assignee typically sells all assets without any representation or warranty. An as-is sale allows things to proceed quickly; ABCs are known for being one of the fastest ways to address significant debt issues. 

Assignees protect the assets of the estate or corporation. They are required to administer those assets fairly and in the interest of the Assignor and its creditors. 

How to Choose an Assignee

Choosing an Assignee is about finding the right third party representative. We recommend that you look for the following characteristics in your chosen Assignee:

• Experience: Choose an Assignee who has significant experience with managing and liquidating assets for struggling businesses.
• Reputation: These days, reputation means everything. It’s easy to find out through some searching if a potential Assignee is qualified and reputable. 
• Knowledge: A knowledgeable Assignee will be able to answer your questions about the process and chart out likely outcomes.  

Do You Need an Assignee? 

Griswold Law regularly manages and sells business assets. We serve as court-appointed receivers as well as ABC-contracted Assignees. To learn more about ABCs and how we can help you avoid bankruptcy, reach out today .

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ASSIGNMENT FOR BENEFIT OF CREDITORS

Simon PLC Attorneys & Counselors – October 2020 Memorandum

Bloomfield Hills, Michigan – An assignment for benefit of creditors (“ABC”) is an alternative to formal bankruptcy proceedings and is governed by state law (N.B. ABC statutes and laws vary from state to state.   There is minimal case law regarding ABCs, and most of the reported decisions are over one hundred years old.   This article is based upon Michigan’s ABC statute and the author’s practical experience.)   An ABC involves a voluntary transfer or assignment of all the debtor’s assets to a third party chosen by the debtor.  The third party, termed an ‘assignee’, then liquidates the assets in accordance with the assignment statute.  There is minimal court supervision, although the assignee is required to periodically report to the Court and must give notice of the assignment to the creditors of the debtor.    

Although both receivership and an ABC involve liquidation of assets under court supervision, a receivership is often imposed by a creditor on an unwilling debtor.   In contrast, an ABC is a voluntary process.   Another key difference is that while the choice of a receiver is subject to the discretion of the court, the assignee is chosen by the debtor.

An ABC allows a debtor to efficiently liquidate its asset while at the same minimizing costs associated with multiple creditors attempting to either block a sale or seize an asset.   The assignee is empowered to operate a business as a going concern, terminate burdensome contracts and promptly liquidate assets.   This can maximize value and allow for efficient administration.

Also, any sale of the assets can be approved by the court, thereby giving buyers the comfort that the sale will not be collaterally attacked later.   ABCs are also more flexible and less costly than a bankruptcy proceeding.

Common Questions

While an ABC is not a universal solution, it can provide a quick and efficient exit strategy from a difficult situation.   Furthermore, an ABC allows for operation of a business as a going concern. This is especially helpful in cases involving hotels, bars, restaurants, gas stations, and apartment buildings, or if the asset has greater value as a going concern.

Please contact Simon PLC Attorneys and Counselors if you would like advice on how to put an ABC to use for you as a debtor, or creditor, or as an alternative to bankruptcy or receivership.

N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.

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Assignments for the Benefits of Creditors - "ABC's" - The Basics in California

An assignment for the benefit of creditors (“ABC”) is a contract by which an economically troubled entity ("Assignor") transfers legal and equitable title, as well as custody and control, of its assets and property to an independent third party ("Assignee") in trust, who is required to apply the proceeds of sale of the property to the assignor's creditors in accord with priorities established by law.

ABCs are a well-established common law tool and alternative to formal bankruptcy proceedings. The method only makes sense if there are significant assets to liquidate. ABCs are most successful when the Assignor, Assignee and creditors cooperate but can be imposed even if the creditors are not supportive.

Assignors - Rights and Duties

Generally, any debtor – an individual, partnership, corporation or LLC - may make an assignment for the benefit of creditors. Individuals seldom utilize ABCs, though, because there is no discharge of all debts as there would normally occur in a completed bankruptcy filing. Thus, the protection and benefit of the process is quite limited for any personal obligor.

ABCs can benefit individual principals who have personally guaranteed company obligations or have personal liability on tax claims. Once the Assignment Agreement has been executed, a trust is automatically put in place over the assets transferred. The Assignor can neither rescind the contract nor control the proceedings, but the Assignor may be consulted as necessary and appropriate by the Assignee during the liquidation process.

Assets to be Assigned

Assignor may assign any non-exempt real, personal, and/or general intangible property that can be sold or conveyed. Note that such assets as intellectual property, trade names, logos, etc. may be so transferred and sold. When a corporation makes an assignment, all corporate property, tangible and intangible is transferred including accounts, and rights and credits of all kinds, both in law and equity. The assets only can be sold, not the corporation or its stock. Thus the corporation remains existing, albeit without any significant assets left. It becomes, effectively, a shell.

Assets are typically sold without representations or warranties. The sale is free and clear of known liens, claims and encumbrances - with the consent or full payoff of lien holders. Generally, Assignee warrants only that Assignee has title to the assets.

Assignees - Rights and Duties

The Assignee is generally an unrelated professional liquidator selected by the Assignor. The Assignee gathers the Assignor’s assets and sells the Assignor’s right, title and interest in those assets, then distributes the proceeds to Creditors in accordance with statutory priorities.

The Assignee has a fiduciary duty to the Creditors. Assignee’s duties include protecting the assets of the estate, administering them fairly and representing the estate. Assignee is free to enter into contracts to recover assets or liquidated claims, e.g. filing suit or taking other action.

The Assignee may be removed by a court for violations of the Assignment contract or nonfeasance (failure to act appropriately). The Assignee may not give up his/her/its duties without liability or a superior court order until creditors receive distribution of the proceeds of sale of the assets transferred.

Assignee usually prepares the Assignment documents, though the attorney for the Assignor may draft them as well. Often the terms are negotiated at length.

Preferential Claims and Avoidance

Assignee has statutory avoidance powers, similar to those granted to a Chapter 7 bankruptcy trustee. [See Calif. CCP § 493.030 (termination of lien of attachment or temporary protective order), § 1800 et seq. (avoidance of preferential transfers); Calif. Civ.C. § 3439 et seq. (avoidance of fraudulent conveyances)]

Even so, courts may question this right outside a bankruptcy proceeding. There is also disagreement between the Federal Court (Ninth Circuit) and California state courts whether the Bankruptcy Code preempts the assignee's preference avoidance power under California statutory law.

Creditors - Rights and Duties

While not required to consent to an Assignment, secured creditors often must agree in advance since their cooperation frequently affects the liquidation of the assets. Secured creditors are not barred from enforcing their security by such an assignment. The acceptance of an Assignment by unsecured creditors is not necessary, since under common law the proceedings are deemed to benefit them through equality of treatment.

Note that all Creditors must file their claims within the statutory 150-180 day claim filing period.

ABCs in California do not require a public court filing, but most corporations require both board and shareholder approval. Costs and expenses, including the assignee’s fees, legal expenses and costs of administration, are paid first, just as in a Chapter 7 bankruptcy . Because an assignee’s fee is often based on a percentage value of the assigned assets, it can be difficult to procure assignees for smaller estates.

• Assignment Agreement is executed and ratified. Assignor turns over and assigns to Assignee all right, title and interest in the assets being assigned.
• Assignor gives Assignee a complete, certified list of creditors, including addresses and amounts owed.
• Assignee notifies Creditors within 30 days of execution that assignment has been made, provides an estimate of the probable distribution, and provides a claim form for each Creditor to file a claim in the Assignment estate.
• Creditors have 150-180 days from the date of written notice of the assignment to file their claims.
• After claim forms are returned and/or the Bar Date has passed, Assignee reconciles the claims and/or objects to any improper claim amounts.
• After liquidation, Assignee determines distribution amounts. Claim priority is determined first by state statute, then by Bankruptcy Code. First are secured creditors, then follow tax & wage claims.
• Assignee generally informs the IRS that assignment has been made and files notice with local Recorder.
• Assignee immediately searches for any previously undisclosed liens (UCC or real estate) to ensure complete notice to all creditors and interest holders.
• Assignee secures all assets. In limited situations where the business has enough cash, Assignee may continue to operate the business to maintain going-concern value - if no further debt will be incurred.

It normally takes about 12 months to conclude an ABC.

Effects of ABC

An ABC generally is faster and less costly than a bankruptcy proceeding. Parties can often agree and determine what is going to happen prior to execution of the assignment.

However, ABCs do not discharge individual Assignors from their debts, and do not provide for the reorganization of the business. There is no automatic stay, though in practice an ABC results in an informal and/or incomplete automatic stay if the creditors determine that the assets are beyond their reach.

Creditors are able to continue to pursue the Assignor. ABCs often block judgment creditors from attaching assets because the Assignor no longer has title to or interest in the assigned assets. Sometimes the Assignee is willing to allow the judgment if the judgment creditor submits its claim as described above. The assignee may also defend against a claim if the plaintiff is seeking a judgment which is unjustified and not fair to other creditors.

An ABC also provides grounds for filing an involuntary bankruptcy petition within 120 days of assignment.

The Statutes: California Code of Civil Procedure

§§493.010-493.060 “Effect of Bankruptcy Proceedings and General Assignments for the Benefit of Creditors”

§§1800-1802 “Recovery of Preferences and Exempt Property in an Assignment for the Benefit of Creditors”

A Chapter 11 Reorganization can cost hundreds of thousands of dollars and even a business Chapter 7 Liquidation bankruptcy can easily cost tens of thousands or more. The Assignment method, which pays the Assignee normally by a percentage of the assets sold, is cost-efficient but limited in the protection it may afford the Assignor, as described above. Before this method is attempted, competent legal counsel and certified public accountants should be consulted.

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N.Y. Debtor & Creditor Law Section 3 Requisites of general assignment

Source: Section 3 — Requisites of general assignment , https://www.­nysenate.­gov/legislation/laws/DCD/3 (updated Sep. 22, 2014; accessed Jul. 20, 2024).

Accessed: Jul. 20, 2024

Last modified: Sep. 22, 2014

§ 3’s source at nysenate​.gov

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

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Assignment for the Benefit of Creditors - Defenses to Preference Suit By an Assignee

At one time or another, many of our commercial litigation clients have been sued by an “assignee for the benefit of creditors.” When our clients receive a summons and complaint notifying them they are being sued by an assignee, it may be unclear to them why they are being sued. The answer is often that our client’s former customer has made an "assignment for the benefit of creditors." The former customer has authorized a person or entity, often an attorney, to collect and liquidate the customer’s assets and sue our client in an attempt to obtain payments that the former customer previously made to our client. In other words, having been paid for goods sold or services performed, our client now faces the possibility of having its money earned taken away. This post aims to explain why this is a possibility and the potential defenses to such an action.

What Is An Assignment for the Benefit of Creditors?

In layman’s terms, an “assignment for the benefit of creditors” is when a company, usually suffering from financial difficulties, can sell off its assets to pay its creditors. It functions much like a bankruptcy proceeding, except it is based upon state law. In New Jersey, assignment for the benefit of creditors proceeding are governed by the Assignment for Benefit of Creditors Statute (the statute), N.J.S.A. 2A:19-1 to 50. The statute's purpose is to treat all creditors equally and avoid disproportionately favoring any single creditor. N.J.S.A. 2A:19-2.

What is an Assignee?

An “assignee” is an independent third party to whom the business distributing its assets, known as the “assignor”, conveys or assigns, all of its assets in trust.

What can an Assignee Do?

The assignee is empowered with two roles. Subject to certain exceptions, the assignee has the power to dispose of all of the property that the assignor owned at the time of the assignment. The assignment is the document that establishes the transfer of property from assignor to assignee. Pursuant to N.J.S.A. 2A:19-13, the assignee

[M]ay sue for and recover in his own name everything belonging or appertaining to the estate. He may compromise, settle and compound all claims, disputes and litigations of the assignor, refer the same to arbitration, agree with any person concerning the same, redeem all mortgages and conditional contracts, and generally act as and do whatsoever the assignor might have lawfully done in the premises.

In short the assignee may do anything with the property of the assignor that the assignor could do. The second role of the assignee is to represent all of the assignor’s creditors.

How Can the Assignee Take Money Away From My Business?

The answer to this question lies in the second role of the assignee. Because the assignee is obligated to represent all of the assignor’s debtors equally, the assignee has a limited right to recover payments made by the assignor to third parties within 4 months of the general assignment. N.J.S.A. 2A:19-3. In short, if your former customer is the assignor, and your former customer paid you, then made a general assignment less than 4 months later, the assignee can sue you in an attempt to force you to return the money. The reasoning behind this is that in making the original payment to you prior to making the assignment, the assignor has given you preferential treatment in comparison to the other creditors. This type of payment is known as a “preference.”

How Can I Stop the Assignee from Claiming Taking My Money As a Preference?

Whether or not you can stop an assignee from taking your money boils down to the whether you received the money as a preference. The statute governing assignment for the benefit of creditors is vague and there is a limited amount of case law interpreting the statute. There is no definition of “preference” in the assignment for the benefit of creditors statute. One must look elsewhere for answers to this question.

The New Jersey statutory scheme governing corporations does define “preference.” In addition, New Jersey’s Rules of Court provide that "The practice relating to assignments for the benefit of creditors under N.J.S.A. 2A: 19-1 et seq. shall conform as nearly as practicable to the procedure relating to insolvent corporations." Thus, the definition of “preference” in the statute governing corporations is a good place to look. There, a preference is deemed to arise when:

(a) a corporation which, while insolvent, and within four months of the commencement of a receivership action by or against it, transfers any property to or for the benefit of a creditor for or on account of an antecedent debt; and

(b) the effect of such transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class; and

(c) the creditor receiving or to be benefited by the transfer, or his agent acting with reference thereto, has, at the time when the transfer is made, reasonable cause to believe that the corporation is insolvent.

N.J.S.A. 14A:14-14(1). Payments made to satisfy pre-existing debts within 4 months of an assignment would constitute preferences under this definition if the effect is to prefer the recipient of the payment to other creditors and the creditor has reasonable cause to believe the debtor is insolvent. By contrast, payments not meeting this description would not be recoverable by an assignee. This suggests that bankruptcy defenses to a preference, like a contemporaneous exchange for new value, where payment is made to the creditor not to satisfy a pre-existing debt, but to pay for newly delivered goods or services, are also valid defenses against an assignee.

Is It Worth Fighting An Assignee Trying to Recover a Preference From Me?

When the payment at issue is obviously a preference, it is likely not possible to stop the assignee from taking money that was made as part of a preferential transfer. In such situations, a careful analysis should be made as to whether or not it is more cost effective to fight a lawsuit filed by the assignee or agree to a settlement. However, where a payment is not clearly a preference, you may be able to stop the assignee from taking your money and there may be good reason to fight the assignee’s lawsuit.

New Jersey Business and Collection Lawyers

The New Jersey business lawyers at the Law Office of Bart J. Klein advise clients on issues relating to New Jersey a broad range of business disputes and commercial disputes , including breach of contract and commercial collection cases. We represent both creditors and debtors and are well versed in the law governing judgment collection. We welcome you to call us at (973) 763-6060, email [email protected] , or complete our online contact form for more information.

Disclaimer: The Law Office of Bart J. Klein maintains this website exclusively for informational purposes. It is not legal or other professional advice and does not necessarily represent the opinion of The Law Office of Bart J. Klein or its clients. Viewing this site, using information from it, or communicating with The Law Office of Bart J. Klein through this site by Internet or email does not create an attorney-client relationship between you and The Law Office of Bart J. Klein. Online readers should not act or decline to act, based on content from this site, without first consulting an attorney or other appropriate professional. Because the law changes constantly, this website's content may not indicate the current state of the law. Nothing on this site predicts or guarantees future results. The Law Office of Bart J. Klein is not liable for the use or interpretation of information contained on this site, and expressly disclaims all liability for any actions you take or do not take, based on this site's content.

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2010 California Code Code of Civil Procedure Chapter 13. Effect Of Bankruptcy Proceedings And General Assignments For The Benefit Of Creditors

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Assignments for the Benefit of Creditors in Minnesota

Understanding how an ABC works is essential to a creditor re-establishing control of the debt collection process.

In August 2012, Minnesota enacted a new, more user-friendly statute governing the once seldom-used tool of Assignments for the Benefit of Creditors (“ABC”). [Disclaimer: Jeffrey Ansel served on the committee that was tasked with re-writing Minnesota’s receivership laws]. Since then, ABC’s have become more common. Unlike receiverships, [1] ABC’s are typically initiated by debtors, giving the debtor control over when an ABC is commenced, the assets included in the ABC, and selection of the “administrator” or assignee. Creditors, including (and especially) lenders are rightly concerned about the debtor having control over these options. Understanding how an ABC works, however, is essential to a creditor re-establishing control of the debt collection process.

GENERAL PURPOSE OF AN ABC

An ABC is commenced by the filing of a written assignment agreement in a form substantially similar to the form included in the statute. Minn. Stat. §577.12 and .13. The Assignment must be filed with the court administrator of the district court in the county where the assignor, or any of them if there is more than one, resides or has its principal of business. Minn. Stat. §577.12.  An ABC provides a debtor with an opportunity to use neutral party and a court‑supervised process to liquidate some or all of its assets in an orderly fashion to satisfy creditor claims. This process can insulate the debtor from having to deal directly with creditors and avoid any claims that the debtor preferred one creditor over another. As a court-supervised process, an ABC can help to narrow disputes and give all parties closure.

CAST OF CHARACTERS IN AN ABC

The cast of characters in an ABC includes the assignor, the assignee, the creditors of the assignor, the Court, and potentially holders of equity interests in the assignor. [2] Unlike a receivership, where a party, typically a creditor or shareholder, recommends and the Court selects and appoints a receiver, in an ABC the assignor is authorized to select the assignee. However, the assignee must be eligible to serve as receiver and therefore must meet the same criteria required of a receiver. See Minn. Stat. §577.12 [3]   To determine whether a proposed assignee is eligible to serve, the Court will evaluate the proposed assignee’s qualifications and independence. See Minn. Stat. §576.26. [4] The assignor may assign assets to one or more assignees. Minn. Stat. §577.12.  For example, an assignor can assign real property to an assignee with particular experience in liquidating real estate while assigning other assets to a different assignee.

The assignee takes possession and control of the assigned assets (the “Assignment Property”); gives notice to those statutorily entitled to the same pursuant to Minn. Stat. § 576.34,   and liquidates the Assignment Property for purposes of paying the assignor’s creditors. The assignee serves the same purpose as a general receiver under Minnesota’s receivership laws, Minn. Stat. § 576. [5]

Creditors of the assignor, both secured and unsecured, may receive distributions from the liquidation process. Creditors may be required to file claims forms detailing what is owed to them and why. See Minn. Stat. §576.49 and .50. Certain creditors are stayed from pursuing certain claims against the assignor, the assignee, or the Assignment Property outside of the ABC process. See, Minn. Stat. §576.45.

The Court in which the ABC is filed has jurisdiction over the Assignment Property, the assignee, and the ABC proceedings.

THE ASSIGNMENT PROPERTY

The language of the assignment form as set forth in Minn. Stat. §577.13, [6] and the statute provides that the assignor can assign all or some of its assets to the assignee. [7] The assets so assigned are the Assignment Property pursuant to Minn. Stat. §577.11(c).  The Court then has jurisdiction over the Assignment Property, and the assignee is given control over the assets, but not the entity which owns the assets (i.e., the assignor).

INITIAL ORDER

The Assignment agreement does not contain all of the usual terms and provisions of a typical receivership order. Accordingly, best practice suggests that the assignee upon appointment, or as soon thereafter as practical, should seek a court order approving and validating the assignment and otherwise delineating the powers, duties, and process for the ABC.  This order could also include the provisions typical in a receivership appointment order (e.g., duties of and restrictions on the other parties involved in the ABC, a periodic reporting protocol for the assignee with an objection process and statement that failure to timely object is a waiver of the objection as to matters described in the report, as set forth in Minn. Stat. §576.36, lay out the claims process, including claim form exemplars, claim administration, objections to allowance of claims, extend the limited stay if appropriate, and other matters relevant to the case), as well as other provisions specific to the particular situation.

SALES OF ASSIGNMENT PROPERTY

Typically the assignee is required to sell real and personal property as part of the ABC process. If the sale of such property is in the ordinary course of the assignor’s business, the assignee can sell such property without Court authorization. Minn. Stat. § 576.29, Subd. 1(b)(4). If, however, the sale of such property is not in the ordinary course of business (such as an auction, for example), the assignee is required to obtain prior Court approval. Minn. Stat. § 576.29, Subd. 1(b)(5). Depending on the nature and value of the property, the assignee may want to seek such approval before having a buyer identified or may want to wait until it has received a purchase offer.

The assignee may sell Assignment Property [8] subject to liens or free and clear of liens, except liens for unpaid real estate taxes or assessments or liens airing under federal law. Minn. Stat. § 576.46, Subd. 1. Any owner of property or lien holder may object to a proposed sale. If the Court determines that the amount likely to be realized from the sale is less than the objecting party would realize in the absence of the sale, the Court will not permit the sale to go forward. Upon the sale of property free and clear of liens, all liens encumbering the property shall transfer and attach to the proceeds of the sale, less reasonable expenses incurred in the disposition of the property. Minn. Stat. § 576.46, Subd. 1(c). The Court may then authorize the assignee to pay secured creditors out of the sale proceeds.

The Court may not authorize the sale free and clear of a co‑owner’s interest in property. Minn. Stat. § 576.46, Subd. 2. Rather, the assignee shall have the assignor’s rights and powers afforded by state and federal law, including any rights of partition.

A secured creditor may credit bid at a sale provided that the creditor tenders cash sufficient to pay the reasonable expenses incurred in the disposition of the property and all senior liens. Minn. Stat. § 576.46, Subd. 3.

CLAIM PROCESS

Not surprisingly, the claims process is usually the most time-consuming portion of the ABC. Unlike the more formal claims process in federal bankruptcy proceedings, the ABC/receiver statute provides the assignee and the Court with a great deal of latitude with respect to the claims process. Minn. Stat. § 576.49. The assignee is to “submit to the Court a recommendation concerning a claims process appropriate to the particular” ABC proceeding. The Court is then required to establish a claims process addressing specific topics in the statute. [9]

In some ABC proceedings, it makes sense for the assignee to immediately submit a claims process recommendation to the Court. Sometimes, however, it makes more sense for the assignee to wait until the assignee has a better understanding of the value of the Assigned Property and the claims the assignee anticipates will be filed. For example, if the value of the Assigned Property is unlikely to result in a distribution to general unsecured creditors, it does not make sense to immediately recommend a claims process that requires unsecured creditors to file claims and requires the assignee to evaluate, and potentially object to, those claims. See Minn. Stat. § 576.51 (establishing a priority schedule for allowed claims to receive distributions). Rather in such a circumstance, it might make sense to require secured creditors to file claims immediately and wait to determine whether to require unsecured creditors to file claims until more is known about whether a distribution to unsecured creditors is likely.

Likewise, in some proceedings it may make sense to have creditors file claims with the Court, whereas in other proceedings it may make sense to have creditors file claims with the assignee or claims processing agent retained by the assignee, depending on: (1) the anticipated number of claims; (2) the sophistication of the creditor, will creditors have the ability to electronically file claims with the Court; and (3) whether sensitive or confidential information is likely to be included along with claim forms.

The assignee should also evaluate the information it received from the assignor to determine whether claims should be allowed without requiring the specific creditor to file a proof of claim. For example, the assignor may have kept detailed books and records that show the assignor owed specific creditors specific amounts. The assignee should determine whether it is necessary for those creditors to file a proof of claim.

Once claims have been filed, the assignee and “any party in interest” may object to specific claims. Minn. Stat. § 576.50. The objection must state the grounds for the objection and comply with any other Court imposed requirements. Generally, objections must be filed with the Court and served on certain identified parties at least 30 days before a hearing on the objection. The Court is allowed to estimate claims if fixing or liquidating such claims would unduly delay the administration of the ABC process. Minn. Stat. § 576.50, Subd. 3.

Finally, unlike the claims process in bankruptcy proceedings, the ABC claims process does not include a cap on landlord claims associated with commercial leases. In bankruptcy proceedings, a debtor can reject a lease and a landlord’s resulting bankruptcy claim is capped by 11 U.S.C. § 502(b)(6) up to the rent reserved by the lease for the greater of one year or 15%, not to exceed three years, of the remaining term. In certain circumstances, the difference between lease rejection claims under the bankruptcy code and the Minnesota ABC process may be of sufficient size that it impacts the decision of whether to file bankruptcy or an ABC proceeding.

DISTRIBUTION

The ABC/Receiver statute provides the assignee and the Court with a great deal of flexibility in  the distribution to creditors of Assignment Property. Minn. Stat. §576.53. The assignee is permitted to make interim and final distributions after filing a proposed distribution schedule. The assignee is required to give notice of filing the proposed distribution schedule on all persons on the master service list and all persons that filed proofs of claims. Provided that no objections to the proposed distribution schedule are filed within 21 days of notices, the Court may enter an order authorizing the proposed distribution. If there are objections to the proposed distribution schedule, the Court will rule on those objections and then a distribution can be made.

The assignee’s proposed distribution schedule must comport with the statutory order of priority: (1) secured claims, subject to reimbursing the assignee for the reasonable and necessary expenses of preserving, protecting or disposing of the collateral, including allowed fees and expenses of the assignee and its professionals; (2) other expenses incurred during the ABC process; (3) wages incurred within 90 days of the filing of the ABC, capped at $13,650 (see 11 U.S.C. § 507(a)(4)); (4) security deposits for the purchase, lease or rental of non‑commercial property, capped at $3,025 (see 11 U.S.C. § 507(a)(7)); (5) past due domestic support obligations; (6) unsecured claims of governmental units for taxes that accrued before the commencement of the ABC; (7) all other unsecured claims; and (8) interest on unsecured claims. Minn. Stat. § 576.51.

Notwithstanding this priority schedule, the United States government claims the right to be paid first. See 31 U.S.C. § 3713. This can include tax claims, contract claims, and even claims where the United States is recovering funds on behalf of others. Moreover, the United States claims the right to recover, personally, from any party that makes distributions to others, including paying ABC expenses (including the assignee’s fee) before paying the United States.

Since the ABC/receivership statute was re‑written in 2012, there have not been any reported decisions in Minnesota addressing the conflict between these two statutes. Assignees as well as recipients of distributions should be careful and proactive in evaluating United States government claims before making or taking any distributions. Under the correct circumstances, the United States government may chose not to demand payment first. The United States government may permit secured creditors and/or the assignee to be paid before the United States government. It may also permit certain other creditor classes to be paid.

EFFECT OF AN ABC PROCEEDING-STAYS, PREFERENCES, AND DISCHARGE

The filing of the ABC triggers two separate stays. The first stay acts as a stay against acts to obtain possession of or exercise control over Assignment Property or to create or perfect a lien against Assignment Property. Minn. Stat. § 576.42, Subd. 3. This first stay is permanent. The second stay acts as a stay of commencement or continuation of legal actions against the assignor or the receiver/assignee that were or could have been commenced before the ABC filing and commencement or continuation of a legal action to enforce a lien having priority over the assignee. Minn. Stat. §576.42, Subd. 4. This second stay expires 30 days after the filing unless extended by the Court. In order to extend the stay, the assignee or other party in interest must file a motion seeking extension of the stay within the initial 30 day period. The filing of such a motion extends the stay for an additional 30 days. In order to extend the stay, the Court must do so within 60 days of the filing of the ABC proceeding. [10]

Unlike bankruptcy proceedings, the commencement of an ABC proceeding does not give the assignee the right to recover “preference payments” ‑ payments made within 90 days of the filing to satisfy a pre‑existing debt. Depending on the circumstances, the assignor and other parties in interest will want to evaluate whether the pursuit of preference claims will benefit the process.

Significantly, an ABC proceeding does not conclude with the assignor receiving a discharge from its obligations (as a debtor can obtain by filing for bankruptcy). Rather, creditors continue to have claims against the assignor to the extent such clams are not paid through the distribution process. This may not be a particularly relevant concern for an entity filing an ABC proceeding as part of a liquidation of all its assets, but is certainly relevant for an individual or an entity that hopes to continue operating.

TERMINATION AND REMOVAL OF THE ASSIGNEE

At the conclusion of the ABC, the assignee will file a final report and seek approval of the final report and a discharge. Minn. Stat. § 576.38. The final report shall include a description of the activities of the assignee, a schedule of all Assignment Property as of the commencement of the ABC proceeding, a list of expenditures, a list of unpaid expenses incurred during the ABC proceeding, a list of all dispositions of Assignment Property, a list of all distributions, and, if not done separately, a request for payment of fees and expenses of the assignee. Minn. Stat. § 576.38, Subd. 3. The final report may incorporate the prior interim reports by reference. A discharge of the assignee excuses the assignee from further performance of any duties and discharges any lis pendens recorded by the assignee.

An assignee can also be removed if: the assignee fails to execute and file the bond required by the Court; the assignee resigns, refuses or fails to serve for any reason; or for other good cause. Minn. Stat. § 576.37. Upon removing the assignee, the Court shall determine whether a successor assignee should be appointed. A removed assignee is required to file a final report within 14 days of removal for matters up to the date of the removal.

Since the ABC statute was amended in 2012, there has been a significant increase in the number of ABC proceedings in Minnesota. In the right circumstances, ABC proceedings can be more advantageous than a bankruptcy or a lender exercising its rights under its loan documents. There are, however, limitations and disadvantages that all parties should be aware of prior to proceeding with an ABC. As a relatively new method of handling the assets of an insolvent entity, there is much uncertainty about the advantages and disadvantages of these proceedings. The authors hope that this article has helped clarify those considerations.

[1] ABC’s are governed by Minnesota Statute § 577.11‑.18 and once commenced are conducted similar to general receiverships as described in Minnesota Statute §576.21‑.53.

[2] Some of these terms are defined in Minn. Stat. §577.11, which provides as follows: (a) The definitions in this section and in section 576.21 apply throughout this chapter unless the context requires otherwise. (b) “Assignee” means the person to whom the assignment property is assigned. (c) “Assignment property” means the property assigned pursuant to the provisions of this chapter. (d) “Assignor” means the person who assigns the assignment property. (e) “Time of assignment” means the date and time endorsed by the court administrator pursuant to section 577.14

[3] See Minn. Stat. §577.12 [3] (“Every assignment for the benefit of creditors subject to this chapter made by an assignor of the whole or any part of the assignor’s property, real or personal, for the benefit of creditors, shall be: (1) to a person eligible to be a receiver under section 576.26, . . .).

[4] The Court will consider, among other things, whether the proposed assignee has: sufficient knowledge and experience; the financial ability to post the necessary bond; been previously disqualified from serving as a receiver or assignee; been convicted of a felony or other crime involving moral turpitude; and been found liable in civil court for fraud, breach of fiduciary duty, civil theft or similar conduct. In evaluating the proposed assignee’s independence, the Court will consider, among other things: the relationship the proposed assignee has to the parties and the property proposed in the ABC; whether the proposed assignee has a material financial interest in the outcome of the underlying dispute; and whether the proposed assignee is a creditor or holder of any equity interest in any of the parties to the ABC.

[5] Minn. Stat. §577.18 provides: “Except as otherwise provided in this chapter, an assignee shall be treated as a general receiver, the assignment property shall be treated as receivership property, and all proceedings following the filing of the assignment shall be governed by sections 576.21 to 576.53 .”

[6] The statute says in pertinent part:: “. . . the assignor, . . . hereby assigns to the assignee, . . . the assignor’s property, . . . which property is set forth on Schedule A attached hereto

[7] Minn. Stat. §577.12 states that the assignor can assign “the whole or any part of the assignor’s property, real or personal, for the benefit of creditors,. . .”

[8] The receivership statute provides that a receiver cannot sell agricultural land or homesteaded property unless the owner of the property has consented to the sale following the time of appointment. Minn. Stat. § 576.46, Subd. 1. Because an ABC proceeding is commenced by the assignor transferring to the assignee title to the Assignment Property, this provision should not prevent the sale of such property. That said, some title companies have been reluctant to insure title to real property being sold out of an ABC proceeding without having the assignor consent to the specific sale at issue.

[9]  The statutory requirements to be included in the claims process are: (1) whether proofs of claims must be submitted; (2) the deadline or deadlines for submitting proofs of claims; (3) where the claims are filed ‑ with the Court or the assignee; (4) whether to permit claims based on the amounts established in the books and records of the assignor without requiring the filing of formal claims; and (5) other matters bearing on the claims process.

[10] The Court is empowered to modify both stays upon the motion of a party in interest. Minn. Stat. §576.42, Subd. 5. Moreover, the stay is inapplicable to certain types of proceedings, including, criminal proceedings against the assignor, actions by a governmental unit to enforce its police or regulatory power or to establish tax liability, actions related to establishing paternity, actions to establish or modify an order for alimony, maintenance or support, setoff, acts to maintain or continue the perfection of a lien, or commencement of bankruptcy case. Minn. Stat. § 576.42, Subd. 6.

September 25, 2020

Jeffrey R. Ansel

Creditors’ Remedies, Bankruptcy & Work-Out

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NRS 100.010 Assignment for creditors.

Source: Section 100.010 — Assignment for creditors. , https://www.­leg.­state.­nv.­us/NRS/NRS-100.­html#NRS100Sec010 .

Feb. 5, 2021

§ 100.010’s source at nv​.us

Blank Outline Levels

The legislature occasionally skips outline levels. For example:

In this example, (3) , (4) , and (4)(a) are all outline levels, but (4) was omitted by its authors. It's only implied. This presents an interesting challenge when laying out the text. We've decided to display a blank section with this note, in order to aide readability.

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Watch CBS News

The facts about Kamala Harris' role on immigration in the Biden administration

By Camilo Montoya-Galvez

Updated on: July 23, 2024 / 11:48 AM EDT / CBS News

Following President Biden's decision to abandon his reelection campaign and endorse Vice President Kamala Harris to be the Democratic nominee for president, Harris' role on immigration has come under scrutiny.

Soon after Mr. Biden's announcement, Republicans sought to blame Harris for the Biden administration's woes at the U.S.-Mexico border, where American officials have reported record levels of illegal crossings in the past three years. In a phone conversation with CBS News on Saturday, former President Donald Trump said Harris presided over the "worst border ever" as "border czar," a title her Republican detractors often give her.

Harris is all but certain to face even more criticism over the Biden administration's record on immigration, one of American voters' top concerns ahead of the election. And Harris does have an immigration-related role in the Biden White House, but her responsibilities on the issue are often mischaracterized. 

What exactly is Harris' immigration role?

In March 2021, when the Biden administration faced the early stages of an influx in illegal crossings at the U.S. southern border, Mr. Biden tasked Harris with leading the administration's diplomatic campaign to address the "root causes" of migration from Guatemala, Honduras and El Salvador, including poverty, corruption and violence.

The region, known as Central America's Northern Triangle, has been one of the main sources of migration to the U.S.-Mexico border over the past decade. 

Harris was not asked to be the administration's "border czar" or to oversee immigration policy and enforcement at the U.S.-Mexico border. That has mainly been the responsibility of Homeland Security Secretary Alejandro Mayorkas and his department, which oversees the country's main three immigration agencies, including Customs and Border Protection.

In reality, the only role close to that of a "border czar" under the Biden administration was held for only a few months by Roberta Jacobson, a longtime diplomat who served as coordinator for the Southwest border until April 2021.

In her immigration role, Harris' main line of work has focused on convincing companies to invest in Central America and promoting democracy and development there through diplomacy. In March of this year, the White House announced Harris had secured a commitment from the private sector to invest over $5 billion to promote economic opportunities and reduce violence in the region.

Efforts to reduce migration by improving conditions in migrants' home countries have always been viewed as a long-term strategy by U.S. officials. In its "root causes"  framework , the Biden administration conceded the "systemic change" it envisions for Central America "will take time to achieve."

Questions about her work on immigration

There are some legitimate questions about Harris' work on immigration.

Before the COVID-19 pandemic, most non-Mexican migration to the U.S. southern border originated from the Northern Triangle. In 2021, it made sense for the administration to focus on the root cases of migration in those countries. But migration flows have changed dramatically in recent years. Record numbers of migrants have been coming from places outside of Central America, including from countries like Cuba, Colombia, China, Ecuador and Venezuela.

In fiscal year 2023, for example, Border Patrol apprehensions of migrants from Guatemala, Honduras and El Salvador made up 22% of all crossings during that time period, down from 41% in fiscal year 2021, government statistics show. On the flip side, however, the administration could point to the fact that illegal crossings along the U.S. southern border by migrants from Guatemala, Honduras and El Salvador have decreased significantly every year since 2021.

While most of her critics have been Republicans, Harris' work on immigration has also garnered some criticism from the left. During a visit to Guatemala in June 2021, Harris told those intending to migrate, "Do not come," a statement that drew ire from some progressives and advocates for migrants.

As the second-highest ranking member of the Biden administration, Harris will also likely face questions over the all-time levels of unlawful border crossings reported in 2021, 2022 and 2023. Those crossings, however, have plunged this year, reaching a three-year low in June , after Mr. Biden issued an executive order banning most migrants from asylum.

Camilo Montoya-Galvez is the immigration reporter at CBS News. Based in Washington, he covers immigration policy and politics.

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