State Law Alternatives to Bankruptcy

For certain companies experiencing financial difficulties and seeking an orderly process to wind down their business operations, an assignment for the benefit of creditors (ABC) is an alternative available under state law to commencing a bankruptcy proceeding. In an ABC, the assignor, which is akin to a debtor in bankruptcy, conveys all its assets to an assignee of its choosing. Similar to a bankruptcy trustee, the role of an assignee is to administer and monetize the assets of the estate, both tangible (machinery, equipment, inventory, etc.) and intangible (accounts receivable, avoidance claims, etc.), for the benefit of creditors. The assignee may also seek authority to continue operating the business for an interim period to facilitate the sale of the business as a going concern to anyone willing to pay fair value, potentially including the assignor’s current owners or officers. The assignee provides notice of commencement of the ABC to all creditors, who are required to file a proof of claim if they wish to be considered for any distribution of the estate’s assets that may be made. From the assignor’s standpoint, the legal fees associated with an ABC are typically much lower than those associated with a Chapter 11 bankruptcy proceeding. Unlike a bankruptcy, however, the commencement of an ABC does not provide for an automatic stay of all collection efforts and litigation against the assignor. We can help you determine, based on these and other considerations, whether an ABC is a viable option for your company.