washington state assignment for benefit of creditors

The ABC’s Of An Assignment For The Benefit Of Creditors

A flexible approach to managing debt outside of court, assignment for the benefit of creditors in washington.

Simply stated – an Assignment for the Benefit of Creditors assigns the assets and liabilities of the party making the assignment (the “Assignor”) to that party’s chosen representative (the “Assignee”).  The Assignee then administers those assets for the benefit of creditors as the holder of a power of attorney from the Assignor.

The Regional Background of Assignments for the Benefit of Creditors

Prior to the enactment of the Bankruptcy Code in 1978, the National Association of Credit Management (“NACM”) frequently administered Assignments for the Benefit of Creditors in Spokane, Washington.  

The Spokane Merchants Association was often the sponsor of these assignments, and enlisted the support of the distressed company with pressure from local trade creditors.

The NACM would prepare a written assignment to the management of the target company, with strong provisions for the operation of the company during the assignment.

The NACM would also form a committee of creditors to manage a plan for the repayment of creditors, while frequently obtaining a blanket lien against the assets of the company to render it “judgment-proof” from the claims of non-participating creditors.

Such an assignment effectively wrested control of a company away from its owners and managers, who often had few reasonable alternatives for continuing their business.

The dynamics of creditor intervention changed dramatically with the enactment of the Bankruptcy Code, and the provisions for restructuring business debt under Chapter 11 .   With the protections of the automatic stay, and for the continuation of existing management of the Chapter 11 entity as a debtor in possession, an Assignment for the Benefit of Creditors through NACM became immediately less viable as a creditor remedy.

Although the statute was essentially dead letter law, the Washington statute governing Assignments for the Benefit of Creditors remained substantially unchanged until the enactment of the Washington Receivership Act in 2004.

The Enactment of the Washington Receivership Act

RCW 7.08, which is the statute governing Assignment for the Benefit of Creditors, was restated in 2004 to coordinate Assignment for the Benefit of Creditors with the Washington Receivership Act .

The revised statute provided for the appointment of the Assignee as a receiver following the execution of the assignment.

Under the revised statute , the Assignor may appoint an Assignee for the express purpose of having that party appointed as the receiver.  

The Assignee is best selected by the assignor based on knowledge, trust, and expertise.  The Assignee must consent to the assignment.

Individuals, acting in their personal capacity, may execute an Assignment for the Benefit of Creditors to provide for the administration of their personal assets.   For example, a divorcing couple may initiate an assignment to administer their assets and liabilities as part of a property settlement agreement.  

Individuals are entitled to exempt property in accordance with applicable law, and exclude that property from the assignment.   Otherwise, the Assignor must assign all property to the Assignee.

The assignment must be substantially in the form set forth by statute at RCW 7.08.030. The assignment must attach a schedule of all known creditors, including the creditors’ mailing addresses; the amount and nature of their claims; and whether their claims are in dispute.  

The schedule must also include a true list of all property, including the estimated liquidation value and location of that property, and legal descriptions for all real property.

These schedules of assets and liabilities, while detailed, are less comprehensive than the Official Bankruptcy Forms. It is often advisable to supplement the statutory form of schedules with a schedule of executory contracts and a schedule of co-debtors, so parties will receive a more complete presentation of financial information.

There is no disclosure of operating information or past transactions that is similar to the Statement of Financial Affairs that is required in a bankruptcy case.

What Are The Business Purposes Of An Assignment For The Benefit Of Creditors?

Most Assignors execute an Assignment for the Benefit of Creditors for one of two purposes.

First, an Assignment for the Benefit of Creditors can provide a “stand-alone” procedure for liquidating assets under the independent management of the Assignee .   Unlike a bankruptcy or a receivership case, there is no legal action required to commence an Assignment for the Benefit of Creditors, and no judge will oversee the actions taken by the assignee.

Accordingly, an Assignment for the Benefit of Creditors can be employed to test the willingness of creditors to participate in a voluntary settlement of the Assignor’s liabilities. If so, the Assignor and the creditors may avoid the time and expense of a receivership or bankruptcy proceedings.

As a non-judicial procedure, an Assignment for the Benefit of Creditors is also more private and confidential than a bankruptcy or receivership case. The owners of the assets can then devote their time and energy to other endeavors, and place some distance between themselves and the financial issues of their former business.

Second, an Assignment for the Benefit of Creditors contains the consent of the Assignor to the appointment of the Assignee as a general receiver over the Assignee’s property in accordance with chapter 7.60 RCW. This provision allows the use of an Assignment for the Benefit of Creditors as a “stepping-stone” to a general receivership, without the other procedural hurdles that are set forth in the receivership statute.

Either the Assignor, the Assignee, or any creditor of the Assignor may file a petition to appoint the Assignee as receiver of the assets of the Assignor. That petition, filed with the clerk of the superior court, must include a copy of the assignment; the schedules of assets and liabilities; and a request for the court to fix the amount of the receiver’s bond.

The amount of the bond may be low, since the Assignor selected the Assignee based on faith in the trustworthiness and integrity of the Assignee.    If circumstances change, the Court can increase the amount of the bond as appropriate.

The superior court will then appoint the Assignee as general receiver of the Assignor’s property upon the filing of the petition.

The Washington Receivership Act would govern all further proceedings involving the administration of the Assignor’s property and the claims of the Assignor’s creditors.

There is no requirement to schedule a meeting of creditors.   The court would only schedule such a meeting upon the motion of two or more creditors, if filed within thirty days following the date upon which the receiver mailed notice of the receivership to all known creditors.

At the meeting of creditors, the Court will determine whether to appoint a person other than the Assignee as the general receiver.   A creditor may not vote at any meeting of creditors until the creditor has presented a proof of claim.

The filing of a motion to elect a new Assignee suspends the authority of the Assignee to sell or dispose of any property of the Assignor, except perishable property, whether or not the court has appointed the Assignee as the general receiver.

The failure of the creditors to select a new Assignee will reinstate that authority.   Otherwise, the authority vests in the replacement Assignee, who then serves as the receiver.

More often, a party files a petition to appoint the Assignee as receiver to obtain the protections of the automatic receivership stay, and access to the court for the resolution of creditor disputes.

An Assignment for the Benefit of Creditors must be for the benefit of all creditors in proportion to the amount of their respective claims.   All creditors are entitled to receive notice of the assignment.

The Assignment for the Benefit of Creditors irrevocably appoints the Assignee as the Assignor’s attorney in fact, with full power and authority to do all things that may be necessary to fulfill the assignment.  

The Assignee can perform the same acts that the Assignor could do , including but not limited to the power to sue; the power to execute all necessary deeds, instruments, and conveyances, and the power to convey any or all of the real or personal property of the estate.

The Assignee must take possession of the assets, liquidate the assets, and collect all claims.   The Assignee must pay and discharge all reasonable expenses, costs, and disbursements in connection with administration of the assignment.

To the extent that funds are available after payment of administrative expenses, the assignee must   pay all of the Assignor’s debts and liabilities, according to their priority as established by law, on a pro rata basis within each class.  

Unlike a bankruptcy or receivership, there is no provision for the assignee to exercise the rights of a hypothetical lien creditor to file suit for the recovery of fraudulent transfers, or for the recovery of preferential payments to creditors.

Although the Assignment for the Benefit of Creditors statute does not set forth the priority of creditors’ claims, the priorities established in the Washington Receivership Act should be applicable in an Assignment for the Benefit of Creditors .  

These priorities do not elevate the claims of the federal government above the claims of state tax agencies. Nevertheless, the Internal Revenue Service may assert a first priority claim for payment under 31 U.S.C. 3713(a)(1) , which provides that a claim of the United State Government shall be paid first when a person indebted to the government is insolvent, and that person makes a voluntary assignment of property.

The Assignee must return any assets that remain after the payment of all debts and liabilities to the Assignor.

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Washington Code > Chapter 7.08 – Assignment for benefit of creditors

Terms used in washington code > chapter 7.08 - assignment for benefit of creditors.

• Appropriation : The provision of funds, through an annual appropriations act or a permanent law, for federal agencies to make payments out of the Treasury for specified purposes. The formal federal spending process consists of two sequential steps: authorization
• Arrest : Taking physical custody of a person by lawful authority.
• Attorney-in-fact : A person who, acting as an agent, is given written authorization by another person to transact business for him (her) out of court.
• Chambers : A judge's office.
• Contract : A legal written agreement that becomes binding when signed.
• Corporation : A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
• Damages : Money paid by defendants to successful plaintiffs in civil cases to compensate the plaintiffs for their injuries.
• Deposition : An oral statement made before an officer authorized by law to administer oaths. Such statements are often taken to examine potential witnesses, to obtain discovery, or to be used later in trial.
• Devise : To gift property by will.
• Dismissal : The dropping of a case by the judge without further consideration or hearing. Source:
• Donor : The person who makes a gift.
• Equitable : Pertaining to civil suits in "equity" rather than in "law." In English legal history, the courts of "law" could order the payment of damages and could afford no other remedy. See damages . A separate court of "equity" could order someone to do something or to cease to do something. See, e.g., injunction . In American jurisprudence, the federal courts have both legal and equitable power, but the distinction is still an important one. For example, a trial by jury is normally available in "law" cases but not in "equity" cases. Source: U.S. Courts
• Evidence : Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
• Fair market value : The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
• Fraud : Intentional deception resulting in injury to another.
• Gift : A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
• Jurisdiction : (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
• Lease : A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent). Source: OCC
• Legislative session : That part of a chamber's daily session in which it considers legislative business (bills, resolutions, and actions related thereto).
• Liabilities : The aggregate of all debts and other legal obligations of a particular person or legal entity.
• Lightweight stud : means a stud intended for installation and use in a vehicle tire. See Washington Code 46.04.272
• Oath : A promise to tell the truth.
• Partnership : A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
• person : may be construed to include the United States, this state, or any state or territory, or any public or private corporation or limited liability company, as well as an individual. See Washington Code 1.16.080
• Personal property : All property that is not real property.
• Probable cause : A reasonable ground for belief that the offender violated a specific law.
• Probation : A sentencing alternative to imprisonment in which the court releases convicted defendants under supervision as long as certain conditions are observed.
• Real property : Land, and all immovable fixtures erected on, growing on, or affixed to the land.
• Remainder : An interest in property that takes effect in the future at a specified time or after the occurrence of some event, such as the death of a life tenant.
• Statute : A law passed by a legislature.
• Trial : A hearing that takes place when the defendant pleads "not guilty" and witnesses are required to come to court to give evidence.

Assignments for the Benefit of Creditors – an often-overlooked state law alternative to Chapter 7 bankruptcy

For some folks the three letters ABC are a reminder of elementary school and singing a song to learn the alphabet.  For others, it is a throw back to the early 70’s when the Jackson Five and its lead singer Michael, still with his adolescent high voice, sang a catchy love song.  Then there is a select group of people in the world of corporate workouts, liquidations and bankruptcies, who know those three letters to stand for the A ssignment for the B enefit of C reditors – a voluntary state law liquidation process that may arguably offer a hospitable and friendly alternative to federal bankruptcy.  This article is a brief summary of this potentially attractive alternative to bankruptcy.

 The Assignment for the Benefit of Creditors (“ABC”), also known as a General Assignment, is a state law procedure governed by state statute or common law.  Over 30 states have codified statutes, and the remainder of states rely on common law.  See Practical Issues in Assignments for the Benefit of Creditors , by Robert Richards & Nancy Ross, ABI Law Review Vol. 17:5 (2009) at p. 6 (listing state statutes).  In some states, the statutory authority and common law can coexist.  At its most basic, the ABC process involves the transfer of all assets by a financially distressed debtor (the assignor) to an individual or entity (the assignee) with fiduciary obligations who then liquidates the assets and pays creditors.  The assignment agreement is essentially a contract involving the transfer and control of property, in trust, to a third party.  In some states that have enacted a statute, state courts may supervise the process (and at different levels of involvement depending on the statute).  The statutory scheme in other states such as California and Nevada, and in states where common law govern, do not provide for judicial oversight..  

ABCs are promoted as less expensive and more flexible than a chapter 7 liquidation and may proceed substantially faster than bankruptcy liquidation. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 8 (citations omitted).  In addition, the ABC process may provide four other noteworthy benefits not available in a bankruptcy.  First, the liquidating company chooses the assignee, there is no appointment of a random trustee or formal election required like in a bankruptcy.  This freedom of choice allows the assignor to evaluate the reputation and experience of proposed assignees, as well as select an assignee with familiarity in the nature of the assignor’s business and/or with more expansive contacts in the industry to facilitate the sale/liquidation.  Second, the ABC process generally falls under the radar of the media (particularly in states that do not require court supervision), and the assignor may avoid publicity, often negative, that can be associated with bankruptcy proceedings.  Third, with an ABC, the assignee has the ability to sell the assets without the imposition of potentially cumbersome requirements of Section 363 of the Bankruptcy Code, and in some cases, can conduct a sale the same day as the general assignment.  Finally, the ABC process generally authorizes the sale of assets free of unsecured creditor debt.  In essence, in an ABC, a company buying assets from a distressed business does not acquire the debt of the assignor.

On the down side, ABCs do not provide the protection of the automatic stay that is triggered upon the filing of a bankruptcy petition.  In some situations, the debtor entity needs to stop the pursuit of creditors immediately, and a bankruptcy proceeding will supply this relief.  Unlike bankruptcy, the sale through an ABC: i) is not free and clear of liens; ii) unexpired leases cannot be assumed and assigned without the consent of the contract counter-party; and iii) insolvency can trigger a default under an unexpired lease or executory contract. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 20. In general, an ABC is not a good choice for debtors that have secured creditors that do not consent because there is no mechanism for using cash collateral or transferring assets free and clear of liens without the secured creditors’ consent.  In cases where junior lienholders are out of the money, there is no incentive for those creditors to voluntarily release their liens.  In addition, while unsecured creditors do not have to consent to the general assignment for it to be valid, choosing this alternative forum may cause concern for creditors (particularly those used to the transparency of a court-supervised bankruptcy or receivership proceeding) and invite the filing of an involuntary bankruptcy. Therefore, it is prudent to involve major creditors in the process, and perhaps even in the pre-assignment planning. In addition, if an involuntary petition is filed, the assignee could request that the bankruptcy court abstain in order to proceed with the ABC.

Using the ABC state process in lieu of filing for bankruptcy in federal court may result in a more streamlined, efficient liquidation process that is less expensive and likely completed quicker than a federal bankruptcy proceeding.  In some jurisdictions, such as New Jersey, workout professionals note anecdotally that corporate clients fare better under this state law alternative rather than the lengthy, more complicated federal bankruptcy proceedings.

Many bankruptcy professionals are unfamiliar with the procedures of ABC and are reluctant to recommend it as a method for liquidating assets and administering claims.  This lack of familiarity may be a disservice to potential clients.  

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assignment for benefit of creditors

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Assignment for the benefit of the creditors (ABC)(also known as general assignment for the benefit of the creditors) is a voluntary alternative to formal bankruptcy proceedings that transfers all of the assets from a debtor to a trust for liquidating and distributing its assets. The trustee will manage the assets to pay off debt to creditors, and if any assets are left over, they will be transferred back to the debtor. 

ABC can provide many benefits to an insolvent business in lieu of bankruptcy . First, unlike in bankruptcy proceedings, the business can choose the trustee overseeing the process who might know the specifics of the business better than an appointed trustee. Second, bankruptcy proceedings can take much more time, involve more steps, and further restrict how the business is liquidated compared to an ABC which avoids judicial oversight. Thirdly, dissolving or transferring a company through an ABC often avoids the negative publicity that bankruptcy generates. Lastly, a company trying to purchase assets of a struggling company can avoid liability to unsecured creditors of the failing company. This is important because most other options would expose the acquiring business to all the debt of the struggling business. 

ABC has risen in popularity since the early 2000s, but it varies based on the state. California embraces ABC with common law oversight while many states use stricter statutory ABC structures such as Florida. Also, depending on the state’s corporate law and the company’s charter , the struggling business may be forced to get shareholder approval to use ABC which can be difficult in large corporations. 

[Last updated in June of 2021 by the Wex Definitions Team ]

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2019 Revised Code of Washington Title 7 - Special Proceedings and Actions Chapter 7.08 - Assignment for Benefit of Creditors.

• 7.08.010 Assignment must be for benefit of all creditors.
• 7.08.030 Assignment—Procedure—Creditor's selection of new assignee.
• 7.08.900 Construction—Chapter applicable to state registered domestic partnerships—2009 c 521.

Fraud in assignment for benefit of creditors: RCW 9.45.100.

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Receivership Under RCW 7.60: An Alternative to Bankruptcy

A receivership is the appointment of a disinterested person or organization (a receiver), by a court or by a corporation or a person, for the protection or collection of property that is the subject of creditors’ claims. Receiverships exist at both the state level, through RCW 7.60 , and the federal level, through Rule 66 of the Federal Rules of Civil Procedure . Receiverships serve to usher a business through difficult times with the hope of restoring profitability. While debtors can voluntarily choose to enter a receivership through an assignment for the benefit of creditors (commonly referred to as “ ABC ”), receivership is primarily another tool available for creditors to recoup value when a business is in financial distress.

In essence, a receiver is appointed by the court as the court’s agent, and subject to the court’s direction, to take possession of, manage, or dispose of property of a business for the benefit of creditors. A receiver has the ability to take possession of a failing business liquidate, and distribute the proceeds of the business in accordance with the priorities set forth by law.

If a receivership sounds like a bankruptcy, it should. They are comparable. In fact, the Washington State Legislature enacted RCW 7.60 to “create more comprehensive, streamlined, and cost-effective procedures applicable to proceedings in which property of a person is administered by the courts of this state for the benefit of creditors”; similar to the purpose of bankruptcy.  Statistics show that receiverships are an increasingly popular alternative to bankruptcy. And once you peel back the layers, it is not hard to imagine why. For both creditors and debtors, receiverships cost less and give more control over the outcome.

Costs & Control

Receiverships are generally cheaper than a bankruptcy. Receiverships are not held to the strict deadlines observed in a bankruptcy case and do not involve the burdensome filing requirements from interested parties. Both of these features help reduce the combativeness of bankruptcy litigation and shorten the time frame. Even still, receiverships maintain some of the primary benefits as bankruptcy proceedings such as an automatic stay of many types of actions and the sale of assets free and clear of liens.

Additionally, creditors typically collect more from a receivership than a bankruptcy. In a typical chapter 11 bankruptcy, company management typically remains in control of the debtor company (the classic “ debtor in possession ” bankruptcy), or the bankruptcy estate is overseen by a trustee selected from a standing panel of bankruptcy trustees. However, in a receivership, creditors can propose a potential receiver who meets the qualifications of RCW 7.60.035 . This means creditors can maximize their returns by choosing individuals that will protect creditor interest and choosing individuals who have specialized knowledge in the subject matter of the business going through the receivership.

Key Points to Consider

There are key issues to be aware while considering a receivership. First, while there are federal receiverships ( 28 U.S. Code § 3103 ), most receiverships are operated and controlled by state courts, and therefore subject to state court judges and their rules. While receivership law can look like bankruptcy law, a state court judge may not always agree with such comparison and bankruptcy case law is not necessarily binding on the state court. Some businesses, particularly those who own assets in multiple jurisdictions, will find a federal receivership more appropriate as it gives more power to receivers to manage assets across state lines, but the majority of businesses will find themselves in state court.

Second, receiverships are not always an independent process. While a receivership can be invoked to assist a business in winding up affairs, it can also be “combined with, or [] ancillary to, an action seeking a money judgment or other relief.” RCW 7.60.025 lists 38 reasons to appoint a receiver, the majority of those reasons are a receiver being appointed as part of other legal proceedings. In 2004 the Washington legislature codified receivership law into a single chapter. While that may seem recent, it was the legislatures attempt to clean up over 150 years of separate and distinct uses for receivers in all manner of roles, from caretaking to liquidation of assets.

The multi-faceted application of a receivership is apparent when you consider purpose of a receivership. Unlike bankruptcy, which is designed to protect the debtor, a receivership is designed to protect assets (particularly a lender’s assets), income, real estate, cash, business assets, etc.

Overall, federal and state receiverships are underutilized . They provide a flexible and efficient method of overseeing business transitions while protecting the assets of creditors and lenders alike. While bankruptcies are down in 2021 , following the same downward trend in 2020, some have expressed concern about the continued strength of economic conditions that allow for low bankruptcy filings. The fear now is the conditions and programs supporting businesses through the Covid-19 pandemic will dry up, and a wave of bankruptcy will follow. If this is the case, the receivership may find itself being used more often in the coming years.

The above article is for general information purposes only and should not be relied upon as specific legal advice. This article, or contacting Apex, does not in any way form an attorney-client relationship. If you have any questions or would like to learn more, please contact Coleman Scroggins at [email protected].

• assignments benefits creditors abcs basics california

Assignments for the Benefits of Creditors - "ABC's" - The Basics in California

An assignment for the benefit of creditors (“ABC”) is a contract by which an economically troubled entity ("Assignor") transfers legal and equitable title, as well as custody and control, of its assets and property to an independent third party ("Assignee") in trust, who is required to apply the proceeds of sale of the property to the assignor's creditors in accord with priorities established by law.

ABCs are a well-established common law tool and alternative to formal bankruptcy proceedings. The method only makes sense if there are significant assets to liquidate. ABCs are most successful when the Assignor, Assignee and creditors cooperate but can be imposed even if the creditors are not supportive.

Assignors - Rights and Duties

Generally, any debtor – an individual, partnership, corporation or LLC - may make an assignment for the benefit of creditors. Individuals seldom utilize ABCs, though, because there is no discharge of all debts as there would normally occur in a completed bankruptcy filing. Thus, the protection and benefit of the process is quite limited for any personal obligor.

ABCs can benefit individual principals who have personally guaranteed company obligations or have personal liability on tax claims. Once the Assignment Agreement has been executed, a trust is automatically put in place over the assets transferred. The Assignor can neither rescind the contract nor control the proceedings, but the Assignor may be consulted as necessary and appropriate by the Assignee during the liquidation process.

Assets to be Assigned

Assignor may assign any non-exempt real, personal, and/or general intangible property that can be sold or conveyed. Note that such assets as intellectual property, trade names, logos, etc. may be so transferred and sold. When a corporation makes an assignment, all corporate property, tangible and intangible is transferred including accounts, and rights and credits of all kinds, both in law and equity. The assets only can be sold, not the corporation or its stock. Thus the corporation remains existing, albeit without any significant assets left. It becomes, effectively, a shell.

Assets are typically sold without representations or warranties. The sale is free and clear of known liens, claims and encumbrances - with the consent or full payoff of lien holders. Generally, Assignee warrants only that Assignee has title to the assets.

Assignees - Rights and Duties

The Assignee is generally an unrelated professional liquidator selected by the Assignor. The Assignee gathers the Assignor’s assets and sells the Assignor’s right, title and interest in those assets, then distributes the proceeds to Creditors in accordance with statutory priorities.

The Assignee has a fiduciary duty to the Creditors. Assignee’s duties include protecting the assets of the estate, administering them fairly and representing the estate. Assignee is free to enter into contracts to recover assets or liquidated claims, e.g. filing suit or taking other action.

The Assignee may be removed by a court for violations of the Assignment contract or nonfeasance (failure to act appropriately). The Assignee may not give up his/her/its duties without liability or a superior court order until creditors receive distribution of the proceeds of sale of the assets transferred.

Assignee usually prepares the Assignment documents, though the attorney for the Assignor may draft them as well. Often the terms are negotiated at length.

Preferential Claims and Avoidance

Assignee has statutory avoidance powers, similar to those granted to a Chapter 7 bankruptcy trustee. [See Calif. CCP § 493.030 (termination of lien of attachment or temporary protective order), § 1800 et seq. (avoidance of preferential transfers); Calif. Civ.C. § 3439 et seq. (avoidance of fraudulent conveyances)]

Even so, courts may question this right outside a bankruptcy proceeding. There is also disagreement between the Federal Court (Ninth Circuit) and California state courts whether the Bankruptcy Code preempts the assignee's preference avoidance power under California statutory law.

Creditors - Rights and Duties

While not required to consent to an Assignment, secured creditors often must agree in advance since their cooperation frequently affects the liquidation of the assets. Secured creditors are not barred from enforcing their security by such an assignment. The acceptance of an Assignment by unsecured creditors is not necessary, since under common law the proceedings are deemed to benefit them through equality of treatment.

Note that all Creditors must file their claims within the statutory 150-180 day claim filing period.

ABCs in California do not require a public court filing, but most corporations require both board and shareholder approval. Costs and expenses, including the assignee’s fees, legal expenses and costs of administration, are paid first, just as in a Chapter 7 bankruptcy . Because an assignee’s fee is often based on a percentage value of the assigned assets, it can be difficult to procure assignees for smaller estates.

• Assignment Agreement is executed and ratified. Assignor turns over and assigns to Assignee all right, title and interest in the assets being assigned.
• Assignor gives Assignee a complete, certified list of creditors, including addresses and amounts owed.
• Assignee notifies Creditors within 30 days of execution that assignment has been made, provides an estimate of the probable distribution, and provides a claim form for each Creditor to file a claim in the Assignment estate.
• Creditors have 150-180 days from the date of written notice of the assignment to file their claims.
• After claim forms are returned and/or the Bar Date has passed, Assignee reconciles the claims and/or objects to any improper claim amounts.
• After liquidation, Assignee determines distribution amounts. Claim priority is determined first by state statute, then by Bankruptcy Code. First are secured creditors, then follow tax & wage claims.
• Assignee generally informs the IRS that assignment has been made and files notice with local Recorder.
• Assignee immediately searches for any previously undisclosed liens (UCC or real estate) to ensure complete notice to all creditors and interest holders.
• Assignee secures all assets. In limited situations where the business has enough cash, Assignee may continue to operate the business to maintain going-concern value - if no further debt will be incurred.

It normally takes about 12 months to conclude an ABC.

Effects of ABC

An ABC generally is faster and less costly than a bankruptcy proceeding. Parties can often agree and determine what is going to happen prior to execution of the assignment.

However, ABCs do not discharge individual Assignors from their debts, and do not provide for the reorganization of the business. There is no automatic stay, though in practice an ABC results in an informal and/or incomplete automatic stay if the creditors determine that the assets are beyond their reach.

Creditors are able to continue to pursue the Assignor. ABCs often block judgment creditors from attaching assets because the Assignor no longer has title to or interest in the assigned assets. Sometimes the Assignee is willing to allow the judgment if the judgment creditor submits its claim as described above. The assignee may also defend against a claim if the plaintiff is seeking a judgment which is unjustified and not fair to other creditors.

An ABC also provides grounds for filing an involuntary bankruptcy petition within 120 days of assignment.

The Statutes: California Code of Civil Procedure

§§493.010-493.060 “Effect of Bankruptcy Proceedings and General Assignments for the Benefit of Creditors”

§§1800-1802 “Recovery of Preferences and Exempt Property in an Assignment for the Benefit of Creditors”

A Chapter 11 Reorganization can cost hundreds of thousands of dollars and even a business Chapter 7 Liquidation bankruptcy can easily cost tens of thousands or more. The Assignment method, which pays the Assignee normally by a percentage of the assets sold, is cost-efficient but limited in the protection it may afford the Assignor, as described above. Before this method is attempted, competent legal counsel and certified public accountants should be consulted.

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