Assignment for Benefit of Creditors
In an assignment for the benefit of creditors, the insolvent company (assignor) enters into a legally-binding agreement with a party (assignee), who will act in a fiduciary capacity to wind down and liquidate and/or transfer the assets with Court supervision. The assignee’s fiduciary duty is to the assignor’s creditors, meaning the assignee must act in the best interests of the creditors in these proceedings. In some cases, pursuing an assignment for the benefit of creditors might be preferable to the filing of a federal bankruptcy.
An insolvent business has different options to consider in winding up its affairs. One option provided to such Creditors under Florida Statute is for a business to liquidate its assets to pay its creditors. While bankruptcy is certainly an option to achieve this objective, an alternative strategy is for the insolvent business to consider an assignment for the benefit of creditors, also known as an ABC. Unlike bankruptcy cases, which are filed in federal court, assignments for the benefit of creditors are handled under Florida state law and in state court. The Florida statutes governing assignments for the benefit of creditors can be found here.
An assignment for the benefit of creditors is similar to the liquidation of a business entity under Chapter 7 of the United States Bankruptcy Code, with the advantages of limiting negative publicity for the company and avoiding other negative repercussions for directors and management. If you’d like to learn more about assignments for the benefit of creditors prior to retaining a lawyer, please visit this free (shorthanded) resource.
After a successful assignment for the benefit of creditors, asserts will be liquidated and used to pay off creditors. The creditors will normally only take a percentage of what the debtors asserts are sold for. ABCs work particularly well when pursued as an alternative to a large liquidation. Our attorneys have achieved sustained success with assignments for the benefit of creditors.