Companies may consider a number of alternatives before declaring bankruptcy under Chapter 7 or Chapter 11. One such option is the assignment for the benefit of creditors (ABC), an insolvency proceeding that operates under state rather than federal law. At its core, the ABC option affords distressed companies more protection than Section 363 sales and often requires much less time and financial expenditure.
In a typical ABC proceeding, a third party receives a transfer of legal and equitable title from a troubled entity, which uses the transaction to pay off its debts. The third-party recipient, referred to as the assignee, liquidates the property and uses the proceeds to pay creditors in the proper order of priority. If an ABC is conducted by an established firm, creditors are more likely to find their inquiries addressed in a satisfactory manner. Above all, an ABC sale allows buyers of distressed assets to gain extra protection in exchange for additional process and expense.
In a typical ABC proceeding, a third party receives a transfer of legal and equitable title from a troubled entity, which uses the transaction to pay off its debts. The third-party recipient, referred to as the assignee, liquidates the property and uses the proceeds to pay creditors in the proper order of priority. If an ABC is conducted by an established firm, creditors are more likely to find their inquiries addressed in a satisfactory manner. Above all, an ABC sale allows buyers of distressed assets to gain extra protection in exchange for additional process and expense.