An insolvent company facing the prospect of a liquidating bankruptcy may look for an alternative to avoid the expense and loss of control that can potentially coincide with a bankruptcy filing. One such alternative is an assignment for the benefit of creditors (ABC), which enables a company (assignor) to wind down its business and sell its assets either through a going-concern sale or as part of a liquidation. An ABC usually lasts approximately 60 to 90 days and provides the company and its creditors a level of autonomy not present in a Chapter 7 bankruptcy. This article provides an overview of the ABC process, discusses the role of an assignee, examines the process for selling assets through an ABC, and presents some advantages and disadvantages to an ABC.

Deciding on an ABC

Not every distressed company is a good candidate for an ABC. In determining whether an ABC makes sense in a particular situation, it is imperative to carefully survey the creditor landscape. Because secured creditor consent is required, an ABC may not be workable for a company with multiple secured creditors holding liens on significant portions of the company’s assets unless each such secured creditor can be persuaded that the ABC provides the best prospect for maximizing recovery on its collateral. Thus, a company with a single secured lender is the ideal candidate for an ABC.

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