Explaining an emerging alternative to bankruptcy to resolve distress
What is an ABC?
Assignment for the benefit of creditors (ABC) is a state law winddown procedure that allows for the orderly winddown of a company. The ABC provides for the appointment of an independent fiduciary representative – known as an assignee. The assignee manages the orderly wind down of the business and monetizes the company’s assets for the benefit of the company’s creditors. The assignee will then distribute the proceeds generated from the sale of the company’s assets to the company’s creditors according to state law.
Important pre-approval considerations:
- The decision must be approved by both the board and shareholders.
- Jurisdiction matters – 35 states have some form of an ABC in its laws. Each state will have different considerations and procedures to follow.
What are the benefits of an ABC?
- Choice: Unlike a receivership or a Chapter 7 Case, the board has the ability to select the assignee.
- Time: A bankruptcy case is a lengthy process with many procedural requirements. Most ABCs are significantly less time-consuming than a bankruptcy case or a receivership.
- Savings: The shortened engagement time for ABCs means billing is leaner – many times, ABCs can provide higher returns.
- Distributions to Creditors: Since the cost of an ABC is usually less than a bankruptcy case or a receivership, the actual return to creditors is usually greater in an ABC than in a bankruptcy case or a receivership. In addition, due to the expedited nature of an ABC, distributions to creditors will usually occur sooner in an ABC than in a bankruptcy case or a receivership.
What else should be considered in ABCs?
ABCs have some key differences from bankruptcies which should be carefully considered. For example, there are no automatic stays or statutory caps for landlord claims or employment claims in ABC. Leases and other executory contracts may be more difficult to assign in an ABC than in a bankruptcy case. In addition, ABCs can only be used for a winddown or sale of the business, not reorganization of the business
Interested in learning more?
Resolute’s team of experts include Steve O’Neill, who has more than 35 years of legal experience in ABCs, complex bankruptcy cases, and sale/winddown of companies; and Jeremiah Foster, who has served bankruptcy trustee and liquidating trustee in a variety of ventures.
Please contact us if you would if you’d like to learn more about ABCs or explore your company’s options.