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The Bankruptcy StrategistFeaturesBankruptcyLitigation

The ABCs of Assignments for the Benefit of Creditors (ABCs)

By Mark S. Melickian and Hajar Jouglaf
July 31, 2020

General assignments for the benefit of creditors (ABCs) have been and continue to be a popular business liquidation device for the orderly wind down of corporations, limited liability companies, and even nonprofit corporations and general partnerships. Just as in bankruptcy, an ABC can also be used to facilitate a going-concern sale of the debtor's assets to a third-party.

An ABC can be the most advantageous and graceful exit strategy, particularly where the goals of the company are: 1) to transfer the assets of the troubled business to an acquiring entity free of the unsecured debt incurred by the transferor; and 2) to wind down the company in a manner designed to minimize negative publicity and potential liability for directors and management.

ABCs are available in every state, although specific methods and practices vary. ABCs in 11 states (including the authors' home state of Illinois) are governed by common law. The other states have statutory regimes that vary in complexity and completeness, ranging from the mere mention of the rights of an assignee as a lien creditor pursuant to that state's enactment of the Uniform Commercial Code (UCC) to comprehensive statutory schemes enacted in states such as Washington, Minnesota, and Florida.

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