Surviving Bankruptcy: Assignment for Benefit of Creditors and You

Few start a business assuming that they are going to fail – and many more keep believing that they aren’t until the very last moment of a company. Then, they scramble to find a solution and often find themselves embroiled in a lengthy liquidation process, selling off their assets, paying back debts, and spending months dealing with the fallout – or simply file for bankruptcy and face a gauntlet of legal proceedings.

However, with just a bit of preparation, it’s possible to prepare for the worst and choose the most expedient, safe, and reliable option – which doesn’t have to be liquidating your business on your own or bankruptcy. There’s a third option: The Assignment for Benefit of Creditors, or ABC.

What Is Assignment for Benefit of Creditors?

In a nutshell, when you enter into an ABC, you work with a legal firm specializing in liquidating insolvent businesses to liquidate your assets and pay off your debts without having to do it yourself or involving a bankruptcy trustee. This allows to minimize your involvement in the proceedings, while ensuring a speedy resolution of the process. Speed is an advantage, considering that the number of bankruptcy proceedings consistently hovers between 1.3 and 1.4 million cases.

In order to pay off your debts, the ABC company will first perform an assessment of your business and explore the possibility of selling the entire enterprise as a single whole. If that proves to be impractical or disadvantageous from a financial point of view, then it will liquidate it piecemeal, trying to find the best possible deal. The company has its own stake in it, as their pay is a percentage of the proceedings from the liquidation.

Why ABC and Not Bankruptcy?

While the particulars will vary from case to case, it’s generally a good idea to seriously consider an ABC in case bankruptcy looms over your business. An ABC company will typically be able to close the proceedings in a far shorter amount of time than the courts, take the burden of liquidating the company off your shoulders, and of course, ensure that the entire process is kept private and confidential – something that may be difficult before the courts.

Another advantage is that an ABC company may have experience in dealing with businesses from your market sector and thus be able to auction your assets more effectively. Intellectual property, for instance, is difficult to appraise and auction for a proper price, but with an ABC firm, you can expect that they will go the extra mile to sell it off and satisfy your creditors.

How Popular Is It?

ABC is steadily gaining popularity as a tool for liquidating insolvent businesses, especially larger ones. For example, in January 2015, Body Central, a clothes retailer with 43 years of tradition, entered into the ABC procedure in order to effectively dispose of its assets and pay its debtors. Is it the right solution for you, in the unlikely event that you face the prospect of bankruptcy?

At Van Horn Law Group, we understand the complex dilemmas related to financial distress. We will help you deal with existing problems, prevent future ones, and prepare contingencies should challenges arise despite our best efforts.