What’s An Assignment For The Benefit Of Creditors?

If your business isn’t doing well, and you have creditors, you may be considering bankruptcy. But there may be other reasons why a bankruptcy won’t work for you, or why you may not want to file for bankruptcy.

You could just sell all your stuff yourself, outside of bankruptcy, and use the money to pay off creditors. But you may not have the time or know-how to get top dollar for all of your business’ assets.

The Assignment for the Benefit of Creditors

Enter the Assignment for Benefit of Creditors (ABC). This is where a company assigns its assets to a company, usually a company that has specific experience in selling products for maximum value. In many cases, these companies have specific expertise in your industry, so they can get your assets in front of other companies that need, and thus will pay a higher dollar figure, for your business’ property.

You assign ownership of your property to the ABC company, they sell them, and distribute the proceeds to your creditors. You also are assigning your liabilities to the ABC company, so you are now absolved of any liability for the debts. Your company can assign anything of value, even rights to intellectual property, such as logos, trademarks or copyrights that may have value. You can even assign contingent assets, like lawsuits where you could sue someone, or where you stand to gain money.

The ABC company knows how to sell property, where to get top dollar, and many creditors who may be familiar with these companies, may trust them. The ABC company also has legal obligations to publicize and advertise the sale of your property, to help achieve maximum value from the sale. Additionally, you as the business owner get the peace of mind knowing that you can walk away from a failing company, without worrying about a bankruptcy.

Personal Liability

The one drawback to an ABC is that while an ABC company will assume the company’s liabilities, they will not assume your personal liabilities. So if you signed a personal guarantee on any credit, you will still owe the money if the proceeds of the sale of the property don’t fully pay off the debt. This is one advantage of bankruptcy –if all goes right, your personal obligation is gone as well.

Approvals From Creditors

The ABC company—the assignee—has a legal obligation to protect all the creditors and distribute the proceeds of the sale evenly, much like a bankruptcy trustee might do.

Most of the time, your unsecured creditors don’t have to agree to your ABC. They are getting paid off anyway, and are protected because the ABC has the legal obligation to protect all of them. Your secured creditors may have to agree, and even if they do, again like a bankruptcy, they can still foreclose or repossess property, if the proceeds of the lien aren’t satisfied by the sale.

Whether your business is starting up or winding down, we can help with your business law questions. Call the West Palm Beach commercial litigation lawyers at Pike & Lustig for help today.

Resource:

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