Assignment for the Benefit of Creditors

Dissolving a company because it has become insolvent or because it has failed to become profitable is a frequent occurrence in the world of entrepreneurship, but that does not mean that it is inexpensive or painless.  Filing for bankruptcy protection is an option; all companies and individuals have the right to recourse to the federal bankruptcy courts if they cannot pay their debts and need protection from creditors.  When possible, though, it is easier to settle your debts without going through a formal bankruptcy proceeding in court.  Bankruptcy alternatives such as assignment for the benefit of creditors (ABC) make it easier for the owners of insolvent companies to liquidate their assets and settle their debts, so that they can move forward with dissolving the business entity.  If you are planning on closing an insolvent company and are trying to decide between bankruptcy and ABC, contact a Jupiter family and small business bankruptcy lawyer.

ABC Is a Streamlined Way to Settle Debts When Dissolving an Insolvent Business

Assignment for the benefit of creditors dissolves your business and places its final debt settlement matters in the hands of a third-party company.  Therefore, the board of directors at your company must give their written consent before you can begin the ABC process; the shareholders must also provide their consent in writing.  Once you have the consent of the relevant stakeholders at your company, you may enter into an ABC agreement with a company that will handle the ABC process; this company is known as the assignee.

Pursuant to the ABC agreement, the assignee liquidates your company’s assets and distributes the proceeds, to whatever extent possible, to the creditors listed in the ABC agreement.  The order of priority for settling debts with creditors is secured creditors before unsecured creditors; this is the same order of priority that the bankruptcy courts use in chapter 7 bankruptcy cases.  In the rare event that there is any money left after all of the eligible creditors have settled their debts, the assignee distributes any remaining money to the shareholders.

Differences Between ABC and Bankruptcy

The results of ABC are similar to the results of a chapter 7 bankruptcy filing by a business; the business dissolves itself and liquidates its assets to settle outstanding debts to creditors.  The main difference is that chapter 7 bankruptcy takes place in federal bankruptcy court, while ABC is just another business agreement between companies.  The courts do not get involved in ABC at all, unless a dispute arises from the ABC agreement, and in this case, it is the state courts of Florida or whichever courts you indicate as having jurisdiction in the dispute resolution provisions of the ABC agreement.  Therefore, it is faster, less costly, and less costly than a bankruptcy case.

Work With a Debt Lawyer About Dissolving an Insolvent Business

A South Florida debt lawyer can help you strategize about your debt settlement options when you dissolve an insolvent business.  Contact Nowack & Olson, PLLC in Jupiter, Florida to discuss your case.

Source:

americanbar.org/groups/business_law/resources/business-law-today/2015-november/assignment-for-the-benefit-of-creditors/