General Assignment for the Benefit of Creditors: An Alternative to Bankruptcy


A General Assignment for the Benefit of Creditors is a voluntary and "arms-length" transaction that provides a speedy, orderly, and equitable liquidation of the firm's 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.

The Assignee marshals the assets of the business, liquidate 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.

The Hamer Group
The Hamer Group

Assets Held in Trust

By operation of law, all assets are held in trust upon acceptance of the assignment. These assets and the funds realized therefrom are protected against creditor claims. The assets are then liquidated, and the proceeds, less administrative expenses, are 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 proceeding.

Duties of the Assignee

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.

The Hamer Group
The Hamer Group


Unlike bankruptcy, no upfront fees are required however, in many cases there may be an Assessment Fee for the review of all pertinent documents to determine the business viability as a candidate for a general assignment.

The fee amount is determined before the documents are signed and become part of the General Assignment agreement. The fees for the assignee are paid as an administrative expense from the proceeds recovered.

Advantages of a
General Assignment

A General Assignment does not require court adjudication or consent in California and many other states, nor does it require the consent of creditors.

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 in greater returns for creditors.

A General Assignment is an option that should always be considered when liquidation is the only remaining course of action.

The Hamer Group

FAQ -Frequently Asked Questions

General Assignment for the Benefit of Creditors

Almost anyone. However, the assignee will generally only accept a corporation or a partnership.

A Bankruptcy is a lengthy procedure and very costly. It generally requires a substantial "upfront retainer" and also requires court approval and notices for most if not all major decisions. An Assignment is less costly, and the Assignee fees are paid out of the proceeds. The process is much quicker and usually results in greater recoveries for creditors.

No, a General Assignment does not require creditor consent.

Yes. The assignee will generally contact the secured parties to obtain their consent.

A guarantee obligation stands on its own. It is generally not eliminated either by bankruptcy or by an Assignment for the Benefit of Creditors. However, since an Assignment generally results in greater recoveries, the guarantor stands to benefit.

From a legal standpoint, you do not. However, often the assignee will either employ the principals to assist in the liquidation process or consult with them as necessary and appropriate.

Once the documents have been executed, a trust is automatically in place, and the assignee cannot rescind the agreement.

An agreement executed by a responsible party(s) of the corporation, ratified by a corporate resolution and an executed acceptance by the assignee. In California and some other states, the assignor is required to provide a certified copy of all amounts owed by the corporation with contact names and addresses.

The corporation is divested of all its assets at the time of the execution of the documents, and the assignee will marshal all assets, then cause them to be liquidated as quickly as possible. Separate bank trust accounts are set up for each case. Administrative costs are paid on an ongoing basis, and distribution to secured parties and priorities are made as quickly as possible. Unsecured creditors are required to file their claims within the statutory period of 180 days.

The assignee will consider this possibility and can conclude any sale that benefits the General Assignment estate. The assets only can be sold, not the actual corporation or it's stock.

This depends upon the type of case and the ability to liquidate assets quickly. The statutory claim period usually dictates the time period because of the requirement to carefully screen and process all claims. This process (after the statutory time period) may take several months, but most cases do not exceed twelve months from start to finish. A case can normally be concluded in approximately twelve months.

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