In the business world, an Assignment for the Benefit of Creditors (or “ABC”) is a process which allows a company in financial distress to pay off its creditors. The debtor, or company facing financial difficulty, assigns their assets to a third party, referred to as the “assignee,” who is in turn charged with liquidating those assets in order to pay back creditors. The assignee is appointed by the debtor and works independently from both the creditors and debtor.
Who Benefits From an Assignment for the Benefit of Creditors?
Under the ABC process, creditors can receive partial or full repayment of the debts they have been owed by the company in distress. The assignee is tasked with paying back these creditors in the order of priority established by the State, which typically puts secured creditors first in line, followed by unsecured creditors, and finally subordinated creditors. This system allows creditors with more at stake to get priority over those with less investments.
What Are the Advantages of an Assignment for the Benefit of Creditors?
The Assignment for the Benefit of Creditors process provides an alternative to bankruptcy court for companies facing distress. The ABC process can be quicker and more cost effective, and it’s confidential; the public never has to know. Additionally, ABCs allow the company to avoid potential legal claims from creditors by giving them something in return: the recovered assets approved by the assignee. Last, the ABC process allows companies to put creditors first in line above shareholders and owners.
Conclusion
In summary, an Assignment for the Benefit of Creditors is a tool commonly used by businesses in financial difficulty. It can be less expensive, more speedy and often more discreet than the alternative route of going through the court system. By assigning their assets to a third-party assignee, creditors get the best chance of being repaid, while the company is able to avoid potential legal claims and continue to do business.