Bankruptcy Alternatives: Assignment for the Benefit of Creditors

By: Jeffrey Lynne May 26, 2020 7:10 am

Time to read: 5 Minutes

Frequently, business owners want to know: are there options other than bankruptcy to address financial issues.  There are.  Among those options is an Assignment for the Benefit of Creditors which is often referred to as an “ABC.” Although they sound new, ABCs have been around for decades. In certain cases an ABC is a faster and less expensive alternative to bankruptcy.

ABCs have flexibility which allow an owner to potentially: (i) “walk away” by handing over control; (ii) keep employees employed as part of a going concern operation which is sold to a new company; and (iii) address issues with creditors through a distribution from the liquidated proceeds.

BMU+L Law has experience representing parties in assignment for the benefit of creditors proceedings.  The Florida Statutes Ch. 727 provide the framework for Assignment for the Benefit of Creditors. Below is an overview of the ABC process.

ABC: Parties

In an ABC there are certain key participants:

• The Assignor – the company to be liquidated
• The Assignee – the fiduciary selected to liquidate the assets of the Assignor for distribution to creditors.
• Purchasers – Individuals or businesses who wish to purchase assets or the entire company.
• Creditors – Individuals or businesses who are seeking payment of debt through the ABC process.

ABC: Starting the Process

An ABC starts when the Assignor selects an Assignee. This is one of the primary benefits of the ABC as the Assignor is able to identify, interview, and select an Assignee who has the background and experience to best operate the particular business and maximize its value.  This selection impacts, among other things, retention of employees and the payment of obligations for which the business owner may have a personal guarantee.

Once selected and an assignment is executed and filed with the Court to commence the case.

ABC: Asset Sales and Distributions

The Assignee’s primary responsibility is to identify assets and to liquidate them. Generally, the Assignee may sell either part or all of  business. Examples of assets the Assignee may sell include, among other things:

• Real Estate
• Vehicles
• Intellectual property
• Accounts receivable

Purchasers of these assets can request a Court Order that the sale is “free and clear” of all liens and other encumbrances which may mitigate certain successor liability concerns.

Once the assets are sold, the Assignee distributes the proceeds to creditors pursuant to the priority schedule found in Florida Statute Ch. 727.

Questions? Want to find out more about bankruptcy alternatives? Contact us: