General Assignments
One of the options of a distressed business, as an alternative to bankruptcy, is general assignment. The main aim of general assignments is the turning of assets liquid in order to satisfy the claims of the creditors. In this contract, the insolvent company, as assignor, transfers legal and equitable title, as well as custody and control of its property, to a third party called Assignee.
The assignee will recover all company assets and sell the property and then apply the proceeds of sale to the creditors of the assignee. It is the assignee's obligation to recover all assets and pay off the claims of the creditors. The assignment will be terminated the moment the creditors are paid. Once the creditors are already paid with their claims, the business may go on if there are still enough assets of the company.
General assignments for the benefit of creditors are actually a better alternative to bankruptcy. Court administered bankruptcy takes a longer time and requires more expenses in court fees. While it gives protection to the distressed company, it usually drains up the company's remaining assets as it requires payment of attorney's fees and other lawful fees for service of orders. On the other hand, general assignments do not require court intervention or lawyers who charge very high fees. Assignees act in a fiduciary capacity for the interest of the assignor company. General assignments provide for a faster and greater recovery of assets compared to bankruptcy.
In general assignments, unsecured creditor's consent is not required. Their approval is not needed but they are required to file claims from the proceeds of the sale of the assets. This is also advantageous to secured creditors, which can do away with the expenses in the foreclosure proceedings and the cost of the sale. The risks associated with the foreclosure sale such as low bids and adverse claims are avoided in general assignments. The creditors will just have to wait for the proceeds of the sale and file their claim with the assignee in the period specified. The interest of creditors, both secured and secured, are protected as the proceeds of the sale of the assets are held in trust for them and their claims, if properly filed, are lien on such proceeds.
General assignments are beneficial to both the assignor company in distress and its creditors. But how can you find the right man for the job? The first thing to consider is that the assignee must be experienced in business crises management and not just anyone claiming to be as such. The track record and experience of the assignee must be taken into consideration.
How did he do in his last job as assignee? How many companies have resorted to his help? How many companies were actually saved from closing down? All this questions need to be asked and answered because you do not want to entrust your business just to anyone else. Entrusting the management of your business in this crucial time to a wrong person will cause not just more losses, but heartaches.
