Assignment for the Benefit of Creditors:
An Alternative to Bankruptcy.
Assignment for the Benefit of Creditors is a voluntary and "arms
length" transaction which provides a speedy, orderly and equitable
liquidation of the firmís assets and subsequent distribution to its
creditors.It is similar to a Chapter 7 liquidation process, but is far
quicker and much less expensive and therefore generally derives a larger
distribution to all creditors.
The basic process
in a General Assignment ("Assignment") is that the business
(assignor) turns over its assets to a third party (assignee) who is
responsible for liquidating these assets and settling with creditors.
marshals the assets of the business, liquidates physical assets such as
machinery, equipment, furniture, etc. and collects accounts receivable.
A pro rata
distribution is then made to unsecured creditors of any or all monies
remaining after all priority parties such as secured lenders, lien
holders, etc. have had their interest satisfied.
Assets Held in
By operation of law
all assets are held in trust upon acceptance of the Assignment.
and the funds realized therefrom are protected against creditor claims.
The assets are then
liquidated and the proceeds, less administrative expenses, distributed to
all creditors according to their lawful priority class. The order of
priority is very similar to that used by the Trustee in a bankruptcy
Duties of the
The Assignee has
similar duties to a Trustee in Bankruptcy. The Assignee is charged with
acting in a business-like manner in disposing of assets. The
Assignee has considerable flexibility in the methods used and does not
have to obtain consent or have a hearing to ratify his or her actions.
no up front fees are required. The fee amount is determined before the
documents are signed and becomes part of the General Assignment agreement.
The fees for the Assignee are paid as an administrative expense from the
Advantages of a
A General Assignment
not require court adjudication or consent in California and many other
states, nor does it require the consent
It does not have the stigma of Bankruptcy and frequently
benefits the company's principals who nearly always guarantee lender
obligations of the company.
Because a General
Assignment avoids the administrative procedures that govern bankruptcy
there is a considerable reduction of the cost of liquidation and the time
necessary to sell assets.
The consequence is that there is greater
flexibility in liquidation methods and options with resulting greater
returns for creditors.
Assignment is an option that should always be considered when liquidation
is the only remaining course of action.