Assignment for the Benefit of Creditors

An ABC is a business liquidation device available to insolvent debtors. In effect, it is a contractual agreement under which a company’s assets are transferred in trust to an assignee, who is a fiduciary to the company’s creditors. It is one method of liquidating a business without putting the debtor at odds with his or her creditors.

The benefits of ABCs are multifold in that they are generally less costly and less cumbersome than traditional bankruptcies. Engaging in an ABC can reduce liability of directors and the management of companies seeking an exit strategy. An ABC can also be beneficial from a public relations perspective, where a company’s owner may currently have other companies or seek a future re-entrance in the same industry.

In practical terms, choosing to engage in an ABC can allow a company’s owners, management, and directors to move forward with day-to-day business and transfer the difficulties of closing out their company to the third party assignee.

Once the ABC process has been initiated, the company’s former officers and managers have no further legal obligations to the company. That said, typically officers and managers are responsible for facilitating the ABC in conjunction with the assignee, depending on what is required to wind down the company, in order to enable a seamless and efficient close down.

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