What Is an Assignment for Benefit of Creditors?

An Assignment for Benefit of Creditors, or ABC, is a state-law insolvency proceeding in which an insolvent company voluntarily transfers all of its assets to a third-party assignee. The assignee liquidates those assets and distributes the proceeds to creditors according to statutory priority rules, without the company ever entering federal bankruptcy court. ABCs are governed by state statute, not the Bankruptcy Code, and availability varies significantly by jurisdiction.

How an ABC Differs from Federal Bankruptcy

The most important distinction is court involvement. A Chapter 7 or Chapter 11 bankruptcy operates under the federal Bankruptcy Code, 11 U.S.C. sections 101 et seq., with a bankruptcy judge, a United States Trustee, and the automatic stay. An ABC operates under state law, typically with minimal or no judicial supervision unless a creditor forces the issue.

The Assignee vs. the Trustee

In a Chapter 7, the court appoints a trustee under 11 U.S.C. section 704. In an ABC, the debtor company itself selects the assignee, subject to creditor approval in some states. This gives the debtor more control over who manages the wind-down, but also creates potential conflicts that creditors must scrutinize.

The Automatic Stay

The automatic stay under 11 U.S.C. section 362 does not apply in an ABC. Individual creditors can continue collection efforts, file lawsuits, and perfect liens unless the assignee obtains a stay through state court action or all creditors consent. This absence of automatic protection is often the decisive factor for creditors weighing whether to cooperate or bolt for the courthouse.

Cost and Speed

ABCs are generally faster and less expensive than Chapter 7. There are no quarterly United States Trustee fees, no extensive Rule 2004 examinations, and no bankruptcy court filing fees. A mid-market company with $3 million in assets and limited creditor complexity can complete an ABC in 90 to 120 days where a Chapter 7 might take 18 months.

The ABC Process Step by Step

Execution of the Assignment

The company's board and shareholders execute an assignment instrument, transferring title to all assets, tangible and intangible. This includes accounts receivable, inventory, equipment, intellectual property, and causes of action. The assignment is typically recorded and notice is given to creditors.

Notice to Creditors

The assignee publishes notice in compliance with state law and mails direct notice to known creditors. Creditors then file proofs of claim with the assignee, not with a court. The deadline for filing claims is statutory and varies by state, commonly 30 to 90 days from first publication.

Asset Liquidation and Claims Administration

The assignee collects receivables, sells inventory, negotiates bulk asset sales, and pursues litigation claims. The assignee also reviews and objects to claims, resolves disputed priorities, and administers the estate. In California, for example, the assignee operates under California Code of Civil Procedure sections 493.010 et seq.

Distribution and Discharge

After liquidation, the assignee distributes proceeds according to the statutory priority scheme: secured creditors, administrative expenses, priority claims, general unsecured creditors, and equity holders. The assignee then files a final accounting and obtains a release, either through court approval or creditor consent depending on the state.

Why ABCs Matter to Wind-Down and Restructuring Firms

For firms that specialize in ABC wind-downs, the proceeding is the product itself. The assignee role is a fiduciary position with liability exposure, and the work is operationally intensive: asset valuation, buyer solicitation, claims litigation, preference exposure analysis, and final accounting.

The Assignee as Client

ABC assignees are often experienced insolvency professionals, attorneys, or CPA firms. They need counsel for preference defense, assistance with bulk sale compliance, and sometimes replacement if the original assignee faces removal. Firms that serve this market develop relationships with the professionals who receive repeat assignee appointments.

Preference Risk Under State Law

Unlike federal bankruptcy, where preference actions are governed by 11 U.S.C. section 547, ABC preference law varies by state. Some states have no preference statute at all. Others mirror the Bankruptcy Code's 90-day lookback. A practitioner advising a creditor or assignee must know the specific state rule, not assume federal standards apply.

The Bulk Sale Problem

California and some other states require compliance with bulk sale notice provisions under the Uniform Commercial Code Article 6, where it has not been repealed. Failure to give proper notice can expose the assignee to successor liability for the debtor's unpaid sales taxes. This is a specific, concrete trap that has caught assignees who treated the ABC as an informal process.

Where Practitioners Misstep

Assuming Homogeneity Across States

New York's ABC statute, found in New York Debtor and Creditor Law Article 7, requires court supervision and creditor notice with a claims bar date. Delaware's ABC statute, 10 Del. C. sections 7301 et seq., is more flexible and assignee-friendly. California's statute requires detailed accountings and court confirmation. A practitioner who drafts engagement letters or advice memos using one state's template for another state's proceeding will miss critical requirements.

Overlooking the Fraudulent Transfer Lookback

ABC assignees in many states can pursue fraudulent transfers under the state Uniform Fraudulent Transfer Act or its successor, the Uniform Voidable Transactions Act. The lookback period is typically four years, longer than bankruptcy's two-year window under 11 U.S.C. section 548. A creditor who received a settlement payment three years before the ABC may face exposure they would not face in bankruptcy.

Failing to Secure the Estate's Cash

Without the automatic stay, the assignee has no statutory tool to freeze bank accounts or prevent the debtor's principals from draining remaining funds before the assignment becomes effective. Practitioners sometimes delay the assignment execution to negotiate with a key creditor, only to find the operating account emptied. The assignment instrument should be timed to capture the maximum recoverable estate.

Related Terms in Bankruptcy and Restructuring

A practitioner working with ABCs should also understand the Section 363 Sale, the federal court-supervised asset sale that often competes with or replaces an ABC for larger estates. The Automatic Stay defines the protection ABCs lack. Receivership is another state-court remedy, but creditor-initiated and involuntary, unlike the voluntary ABC. Debtor-in-Possession Financing and the Chief Restructuring Officer are tools for restructurings that attempt to avoid liquidation entirely. Proof of Claim (Bankruptcy) is the federal analog to the claim filed with an assignee.

If your firm handles ABC wind-downs, assignments, or assignee services, the ABC wind-down industry page describes how ROI Wire reaches the principals and fiduciaries who make these appointments. For more terms in this division, see the Bankruptcy & Restructuring glossary hub.