Navigating insolvency and liquidation can be difficult. When a business is going “out of business”, it’s common that its owners have a range of types of debts to resolve, and an equally long list of known and unknown creditors. Negotiating all of these debts, with different creditors, while closing your business, all at the same time, can be extremely overwhelming. While some businesses may opt for bankruptcy, there is another important alternative to bankruptcy that should be strongly considered.
What is an Assignment for the Benefit of Creditors?
The main alternative to business bankruptcy is a state procedure called an “assignment for the benefit of creditors”, which is also referred to as an “ABC.” ABCs are helpful in resolving and facilitating insolvency and liquidation. In an ABC, you hand over your business to a third party called an “assignee” who must liquidate your business assets for the benefit of creditors. Assigning your business and its assets to the assignee may free you from the obligation to deal with your business creditors, and allow you more time to focus on your own personal financial reorganization.
Insolvency and Liquidation – How Does Assignment for the Benefit of Creditors Work?
In an ABC, you choose the assignee that you want to liquidate your business and its assets. You sign over your entire business to that assignee as permitted under state law. While you may still be liable for business debts that you have personally guaranteed, as well as some types of taxes that your business may owe, an ABC is a first step to winding up your business.
What Kinds of Businesses Use Assignment for the Benefit of Creditors?
Any business can use an ABC to resolve and facilitate insolvency and liquidation. One of the best use cases for an ABC is a business owner who no longer wants to operate the business, and does not have the resources, time, or capability to tie up all of the loose ends that come with closing a business. An ABC is also great for business owners who want to keep their business running while they sell the entire operation under court supervision. In these instances, the assignee can seek court approval for the business to continue to operate post-assignment while a sale of the business is reviewed by the court for approval. With the right disclosures, even the current owners of a business may be able to buy their own business using a new entity.
Is Assignment for the Benefit of Creditors Better than Chapter 7 Bankruptcy?
In most instances, an ABC is much better than Chapter 7 bankruptcy for several important reasons. First, the business owner gets to choose their own assignee, while in Chapter 7 they have no control over who will be appointed as trustee. Second, in an ABC, a business owner can continue to operate their business under court supervision while moving a sale before the court. Third, and most obviously, an ABC is not a “bankruptcy”, which may be important for a business owner seeking to start new business ventures in the future and to obtain funding from lenders. To learn whether an ABC is right for your business, schedule a free consultation to compare the ABC procedure against the Chapter 7 procedure, and you can make an educated business judgment decision on the best way to close your business.
Insolvency and Liquidation via ABC with Middlebrooks Shapiro
If you’re a business owner struggling to close your indebted business, the dedicated attorneys at Middlebrooks Shapiro can help. Our team has over 30 years of experience with business bankruptcy, Chapter 7 bankruptcy, ABCs, and other bankruptcy alternatives and can provide you with sound counsel for winding down and liquidating your business in a way that benefits you. Book a free, no-obligation consultation and we will help get you on your way to a debt free life.
