Assignment for the Benefit of Creditors

“Winding up a business that has become insolvent is as easy as ABC,” said no one ever. Closing a business because it has caused too many financial losses for its shareholders is stressful and, somehow, at least as time-consuming as maintaining the operations of a business that is currently viable. Deciding to cut your losses and close down the business venture is the easy part, and the relief that you feel after you make this decision is short-lived. Even if your business venture simply failed to make money, as opposed to an explosive breakup on the level of when the former members of Pink Floyd battled in court over which of them got to keep the inflatable pink pigs that had become a fixture of the band’s stage shows, taking a business out of existence usually requires the help of a lawyer. It may or may not require a bankruptcy filing, though. 

Assignment for the Benefit of Creditors, sometimes abbreviated as ABC, can sometimes give you the same legal protection as a bankruptcy filing but for a much smaller investment of time and money. If you are closing your business and are trying to choose between bankruptcy court and ABC, contact an Oakland business bankruptcy lawyer.

What is Assignment for the Benefit of Creditors?

Assignment for the Benefit of Creditors is when an insolvent business transfers its assets to a third party, usually another business; this party is known as the assignee. The assignee then liquidates the assets of the business and pays the proceeds to the insolvent company’s creditors in the same order of priority that bankruptcy courts use in Chapter 7 bankruptcy cases. If there is any money left after the assignee has used the proceeds from the liquidation to settle debts with the creditors, the insolvent company’s shareholders are entitled to this money.

Why Do Some Businesses Choose Assignment for the Benefit of Creditors Instead of Bankruptcy?

In practice, ABC works a lot like a Chapter 7 bankruptcy filing. The insolvent business liquidates its assets and ceases to exist, and the proceeds of the liquidation go to the insolvent company’s creditors. The difference is that filing for bankruptcy protection involves the federal court, and the bankruptcy filing becomes a matter of public record. By contrast, ABC enables you to avoid the federal bankruptcy courts. If any disputes arise that require a decision by a judge, they go through the state courts, just like any other business litigation. Even more often, though, ABC just involves attorneys representing the insolvent company, the assignee, and the creditors meeting in their various offices, with no involvement of the courts at all. It is faster, cheaper, and less stressful than a bankruptcy case, and it enables the owners of the insolvent company to avoid the negative publicity associated with bankruptcy.

Contact the Law Office of Melanie Tavare About Alternatives to Bankruptcy

A debt relief lawyer can help you file for bankruptcy or otherwise settle the debts of an insolvent business. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a free case evaluation.