assignment for benefit of creditors massachusetts

Assignments for the benefit of creditors

Print Generating
Collection Overview
Collection Organization
Container Inventory

Scope and Contents

Sec. 41 of Chapter 203 of the Massachusetts General Laws requires the filing of a valid copy of an assignment a debtor has made for the benefit of creditors with the City Clerk's Office. Includes one index volume of assignments filed 1897-1942 and a card index of filings for circa 1947-1995.

Creation: 1897-1942, 1947-1995
Boston (Mass.). City Clerk (Organization)

Language of Materials

Assignments (Law)

Departments

0300. City Clerk, Office of the

Finding Aid & Administrative Information

Repository details.

Part of the City of Boston Archives Repository

Collection organization

Assignments for the benefit of creditors, 0301.006. City of Boston Archives.

Cite Item Description

Assignments for the benefit of creditors, 0301.006. City of Boston Archives. https://archives.boston.gov/repositories/2/resources/507 Accessed December 14, 2024.

Assignments for the Benefit of Creditors (“ABCs”)

A solution for troubled companies.

With interest rates remaining at multi-decade highs, more and more companies will face distress and be forced to evaluate options. If pursuit of lifeline capital or a trade sale exit doesn’t materialize for a company facing creditor uproar and a finite cash runway, winding down may be the unpleasant but necessary next step. Privately held companies in this difficult position should weigh the merits of various paths forward with guidance from trusted advisors.

Available methods have pros and cons:

An informal wind-down and dissolution is straightforward but likely not feasible if remaining cash is insufficient to pay back creditors.
A Chapter 11 bankruptcy is a formal reorganization process that plays out in court. Often the best route for companies that have substantial operations and face the threat of heavy litigation, this proceeding rarely makes sense for a small company. It is expensive, public, requires court filings and approval for major actions, and takes at a minimum several months to complete.
In a Chapter 7 bankruptcy , a court-appointed trustee administers the asset liquidation. Trustees often lack industry knowledge, incentives to act with urgency, and the ability to operate the business, should doing so for a short period benefit creditors.
A foreclosure sale under UCC Article 9 , while quicker and cheaper than bankruptcy, may not yield optimal value for the assets, and requires that the lender take responsibility for the sale effort—which they may not have the resources, expertise, or desire to do.

Enter assignments for the benefit of creditors . An “ABC” is a corporate liquidation process available to an insolvent company that has run out of options. A nimble procedure governed by state statute rather than federal law, ABCs are often an attractive alternative to bankruptcy and other options since they are usually faster, simpler, less expensive, and yield better outcomes . While not suitable for all situations (e.g., a company with highly complex multi-state operations and litigious creditors), an ABC is a recognized proceeding that a board can avail itself of to maximize recovery for creditors and minimize its liability. ABCs have grown in popularity in recent years with venture-backed technology companies and traditional brick-and-mortar firms alike.

Here’s how it works: with consent from its board and shareholders, a distressed company transfers ownership of its assets (technology, inventory, machinery, etc.) to a third-party fiduciary of its choosing—the “Assignee”—through a general assignment agreement. The Assignee then sells the assets in an accelerated timeframe, communicates with stakeholders, distributes remaining cash to creditors, and manages the administrative wind-down of the Company.

While providing the company’s board members and officers with many of the protections of a bankruptcy proceeding, an ABC can be effectuated at a fraction of the cost. ABCs happen without judicial oversight in many states (California, Massachusetts, Illinois, etc.), enabling Assignees to move quickly. A speedy process maximizes creditors’ recovery, since many acquirers want to pursue, in parallel with their purchase of the assets, a company’s customers and key employees as well—who would likely be off the market if the process were to take too long. The Assignee is able to continue to operate the business, as long as those operations are financially solvent.

Exploring an ABC makes sense when it becomes clear runway is limited. If the business will be unable to remain a going concern without the closing of a company sale transaction or capital infusion, contingency planning around wind-down options, including ABCs, is prudent. When a company approaches insolvency (inability to pay debts as they come due) the board must act with caution since creditors replace shareholders as the primary beneficiaries of any residual value of the business. Directors of an insolvent corporation are exposed to claims from creditors that the directors’ actions harmed enterprise value and thus failed to protect creditors’ interests. If future prospects are limited and ongoing operations would deepen financial troubles, an ABC can be a graceful way to exit and should be considered.

Who benefits in an ABC?

the creditors – since an experienced Assignee is officially working to maximize their recovery. The Assignee can take the assets to market immediately upon ABC launch (as opposed to the three-to-six-week delay in a Chapter 7 bankruptcy), and engage company personnel to assist, thus preserving asset value and institutional knowledge.
the board – since they can minimize their liability by resigning day one of the ABC, and do not face the disclosure requirements (and therefore stigma) of a bankruptcy.
the acquirer – since the assets are sold free and clear of liens and related liabilities, and the sale can close quickly—without the need to obtain court approval (in many states).
the company’s vendors and customers – since they can start a fresh relationship with the (presumably solvent) asset buyer.

How G2 can help

As a premier financial advisory boutique, G2 helps troubled companies evaluate available options, gain stakeholder buy-in, and implement the best solution. G2’s experience with ABCs and other fiduciary services covers an array of industry sectors and geographies. Our investment banking prowess ensures a professional asset sale process that will yield the highest possible recovery for creditors. G2’s capabilities in special situations span the full range of operational and financial restructuring options available to distressed middle market companies. As an effective tool for both satisfying creditors and allowing stakeholders to exit, an ABC is one such option that a company facing crumbling business prospects may want to consider.

Industry Team

assignment for benefit of creditors massachusetts

Managing Director, Restructuring

Let’s talk about how we can help your business.

Whether you are experiencing strong growth or periods of distress, our team is exceptionally prepared to support your strategic objectives with bespoke solutions. There is no one size fits all approach.

In Solvency

Insights from Fox Rothschild's National Bankruptcy Practice

Assignments for the Benefit of Creditors – an often-overlooked state law alternative to Chapter 7 bankruptcy

by Magdalena Schardt

For some folks the three letters ABC are a reminder of elementary school and singing a song to learn the alphabet. For others, it is a throw back to the early 70’s when the Jackson Five and its lead singer Michael, still with his adolescent high voice, sang a catchy love song. Then there is a select group of people in the world of corporate workouts, liquidations and bankruptcies, who know those three letters to stand for the A ssignment for the B enefit of C reditors – a voluntary state law liquidation process that may arguably offer a hospitable and friendly alternative to federal bankruptcy. This article is a brief summary of this potentially attractive alternative to bankruptcy.

The Assignment for the Benefit of Creditors (“ABC”), also known as a General Assignment, is a state law procedure governed by state statute or common law. Over 30 states have codified statutes, and the remainder of states rely on common law. See Practical Issues in Assignments for the Benefit of Creditors , by Robert Richards & Nancy Ross, ABI Law Review Vol. 17:5 (2009) at p. 6 (listing state statutes). In some states, the statutory authority and common law can coexist. At its most basic, the ABC process involves the transfer of all assets by a financially distressed debtor (the assignor) to an individual or entity (the assignee) with fiduciary obligations who then liquidates the assets and pays creditors. The assignment agreement is essentially a contract involving the transfer and control of property, in trust, to a third party. In some states that have enacted a statute, state courts may supervise the process (and at different levels of involvement depending on the statute). The statutory scheme in other states such as California and Nevada, and in states where common law govern, do not provide for judicial oversight..

ABCs are promoted as less expensive and more flexible than a chapter 7 liquidation and may proceed substantially faster than bankruptcy liquidation. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 8 (citations omitted). In addition, the ABC process may provide four other noteworthy benefits not available in a bankruptcy. First, the liquidating company chooses the assignee, there is no appointment of a random trustee or formal election required like in a bankruptcy. This freedom of choice allows the assignor to evaluate the reputation and experience of proposed assignees, as well as select an assignee with familiarity in the nature of the assignor’s business and/or with more expansive contacts in the industry to facilitate the sale/liquidation. Second, the ABC process generally falls under the radar of the media (particularly in states that do not require court supervision), and the assignor may avoid publicity, often negative, that can be associated with bankruptcy proceedings. Third, with an ABC, the assignee has the ability to sell the assets without the imposition of potentially cumbersome requirements of Section 363 of the Bankruptcy Code, and in some cases, can conduct a sale the same day as the general assignment. Finally, the ABC process generally authorizes the sale of assets free of unsecured creditor debt. In essence, in an ABC, a company buying assets from a distressed business does not acquire the debt of the assignor.

On the down side, ABCs do not provide the protection of the automatic stay that is triggered upon the filing of a bankruptcy petition. In some situations, the debtor entity needs to stop the pursuit of creditors immediately, and a bankruptcy proceeding will supply this relief. Unlike bankruptcy, the sale through an ABC: i) is not free and clear of liens; ii) unexpired leases cannot be assumed and assigned without the consent of the contract counter-party; and iii) insolvency can trigger a default under an unexpired lease or executory contract. See generally Practical Issues in Assignments for the Benefit of Creditors , ABI Law Review Vol. 17:5 (2009) at p. 20. In general, an ABC is not a good choice for debtors that have secured creditors that do not consent because there is no mechanism for using cash collateral or transferring assets free and clear of liens without the secured creditors’ consent. In cases where junior lienholders are out of the money, there is no incentive for those creditors to voluntarily release their liens. In addition, while unsecured creditors do not have to consent to the general assignment for it to be valid, choosing this alternative forum may cause concern for creditors (particularly those used to the transparency of a court-supervised bankruptcy or receivership proceeding) and invite the filing of an involuntary bankruptcy. Therefore, it is prudent to involve major creditors in the process, and perhaps even in the pre-assignment planning. In addition, if an involuntary petition is filed, the assignee could request that the bankruptcy court abstain in order to proceed with the ABC.

Using the ABC state process in lieu of filing for bankruptcy in federal court may result in a more streamlined, efficient liquidation process that is less expensive and likely completed quicker than a federal bankruptcy proceeding. In some jurisdictions, such as New Jersey, workout professionals note anecdotally that corporate clients fare better under this state law alternative rather than the lengthy, more complicated federal bankruptcy proceedings.

Many bankruptcy professionals are unfamiliar with the procedures of ABC and are reluctant to recommend it as a method for liquidating assets and administering claims. This lack of familiarity may be a disservice to potential clients. Fox Rothschild attorneys in the financial restructuring department have experience in representing all parties involved in an ABC, from assignee, assignor, acquiring entity/individual to creditors. If you have questions or are looking for more information about the ABC process, contact Magdalena Schardt or one of our financial restructuring and bankruptcy professionals in one of the 29 offices.

Call Us Today!

Assignment for the Benefit of Creditors: An Overview

By Kyriaki Christodoulou

What is an assignment for the benefit of creditors? An assignment for the benefit of creditors (“ABC”) is an alternative to a chapter 7 bankruptcy proceeding. As in a chapter 7, the debtor’s assets are shepherded and liquidated for the benefit of the debtor’s creditors. An ABC is governed by statute and can either be court-supervised or conducted out of court. In New York, an ABC is governed by Article 2 of the Debtor and Creditor Law.

In an ABC proceeding, the debtor is referred to as an assignor, because it makes a transfer of all its assets to an assignee who serves as a trustee. The assignee is charged with placing all the assets in trust in order to liquidate and distribute the proceeds to creditors. While an ABC has many similarities with a chapter 7 liquidation, the two do differ in two important regards:

an ABC does not afford a debtor an automatic stay from creditor collection; and
a sale does not provide the purchaser with the right to purchase the assets free and clear of liens – unlike a 363 sale in Bankruptcy.

To commence an ABC, an assignor executes an assignment conveying all its assets to the assignee, who becomes a fiduciary on behalf of the assignor and its creditors. The assignee then collects and liquidates assets by collecting accounts receivable, conducting an auction sale, sometimes to a stalking horse bidder who starts the bidding, or through a going out of business sale.

An assignor also has powers under state law to recover fraudulent pre-ABC transfers of assets and preferential payments made to creditors. In New York, the “look-back period” for recovering these transfers is four years.

When it comes to distribution of the assets collected by the assignee, an ABC proceeding follows an established order of priority, which is set forth in either the state’s unique ABC laws or in the deed of assignment. The assignee tallies the proofs of claim that were filed by the creditors in the proceeding and pays the claims, either in full or on a pro rata basis in accordance with the priority scheme.

After the assignor’s assets have been liquidated and creditors have been paid out, the assignee must prepare an accounting detailing the flows of monies in and out of the estate during the case, which may have to be filed with the court supervising the proceedings. As part of the accounting process, the assignee asks the court to close the estate, which notifies all interested parties that (i) the estate has been fully administered, (ii) that the assignee’s work is complete, (iii) that no further distributions need be made, and (iv) that the assignment is terminated.

An ABC is a useful, cost-effective alternative to a traditional chapter 7 bankruptcy liquidation, and may suitably serve liquidation requirements in some situations. Contact KI Legal’s experienced Bankruptcy and Restructuring team to find out which option is right for you.

*ATTORNEY ADVERTISING*

*PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME*

This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team . 

 _____________________________________________________________________________________________

KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.  

Uncategorized ,

Contact Us Today

To schedule a consultation.

A member of our team will be in touch shortly to confirm your contact details or address questions you may have.

*First Name Please enter your first name.
*Last Name Please enter your last name.
*Phone Please enter your phone number. This isn't a valid phone number.
*Email Please enter your email address. This isn't a valid email address.
*Are you a new client? Yes, I am a potential new client No, I'm a current existing client I'm neither. Please make a selection.
*How did you find us? Internet search Website Email Newsletter Advertisement Facebook Instagram LinkedIn Twitter YouTube Other Please make a selection.
If other, how?
Would you like to sign up for our newsletter? Yes No Please make a selection.
*How can we help you? Please enter a message.