Assignments For The Benefit of Creditors (“ABCs”)
- ABCs Are Quick & Less Expensive
- ABCs Create A Trust for the Benefit of Creditors
- ABCs Provide for a Process by which a Lender’s Secured Debt Can Be Resolved
An Assignment for the Benefit of Creditors (“ABC”) is a legally recognized procedure that functions as the equivalent of a Chapter 7 Bankruptcy. Often called an ABC, the process has been recognized for hundreds of years and derives form the old English common law. While recognized in nearly all states, the process varies from state to state. Some states require that the process be under court supervision. Other states, like California, impose no requirement of court supervision.
Generally and ABC requires:
- A transfer of all of that entity’s transferable assets to a third-party fiduciary (called an Assignee)
- For the benefit of all the transferring entities creditors
- Statutory rights of creditors
By the use of an ABC, the transferring entities assets are liquidated of by a Assignee, like Equitable Transitions, Inc., for the benefit of all creditors of the transferring entity. Creditors of the transferring entity are given notice of the ABC and, by statute, are given up to six months to file claims with the Assignee. Creditors who fail to file claims with the Assignee have no right to participate in the distribution of the cash proceeds received from the liquidation of the assets.
ABCs are often a preferred vehicle for the liquidation of the assets of a business enterprise because:
- They Are Quick and Less Expensive
- They Provide Greater Flexibility in Maximizing the Value of Assets
- They Create a Trust for the Benefit of Creditors
- They Provide for a Process by Which a Lenders of a Secured Debt Can Be Resolved
