Assignment for the Benefit of Creditors (ABC)
ABC is a state-law wind-down that preserves more value than Chapter 7 when the business is closing. When it fits, how it works, and what the finance function has to deliver.
ABC Is the State-Law Alternative to Chapter 7 That Most Owners Have Never Heard Of Until They Need It.
An Assignment for the Benefit of Creditors is a state-law process by which a company voluntarily transfers its assets to an independent third-party assignee, who then liquidates them and distributes the proceeds to creditors in accordance with statutory priority. It's not a bankruptcy case. There's no court supervision unless the underlying state's law requires it. It's faster, cheaper, and generally preserves more value than a Chapter 7 — but it's only available when the business has decided to close.
ABC is used most often by companies with real assets to sell — inventory, equipment, receivables, contracts — but not enough enterprise value to justify the cost of a Chapter 11 restructuring. The classic use case is the venture-backed startup that has exhausted the runway, or the middle-market operator whose sale process failed at the last minute.
The mechanics are governed by state law and vary by jurisdiction. California, Delaware, and New York all have well-developed ABC practice. Some states have virtually no infrastructure for it. Counsel with ABC experience in the relevant state is essential.
How the Process Works
The Sequence, in Broad Strokes.
Pre-Assignment Preparation
The board resolves to wind down and selects an assignee. Financial statements are current as of the assignment date. Contracts are catalogued for assignment or rejection. Employees are notified per WARN and state-law requirements. Insurance runs through the transition.
The Assignment
A general assignment document transfers all corporate assets to the assignee in trust for the benefit of creditors. From that moment, the company no longer controls or operates the assets. The board and officers usually resign contemporaneously with the assignment.
Notice to Creditors
The assignee provides statutory notice to all known creditors, sets a claims bar date, and provides the creditor list to interested parties. Creditor claims are filed against the assignment estate, not against the company.
Asset Liquidation
The assignee sells assets — often to a strategic acquirer identified pre-assignment. In a going-concern sale, the buyer picks up the business (employees, contracts, customer relationships) from the assignment estate without inheriting the pre-assignment liabilities. This is often the primary value proposition of the ABC.
Claim Reconciliation
The assignee reconciles filed claims against the company's books. Objections are raised. Priority determinations are made per state law (secured, priority unsecured, general unsecured).
Distribution and Final Accounting
Net proceeds are distributed in statutory priority. The assignee files a final accounting. The assignment estate is closed. Often within 12 months of the assignment date, sometimes faster.
Where ABC Preserves More Value Than Chapter 7.
Going-concern sales happen faster. An assignee who is already identified and prepared can close a sale in days or a few weeks. Chapter 7 trustees typically take longer, and buyers of Chapter 7 assets often discount for the delay and uncertainty.
Lower administrative costs. No court fees. No U.S. Trustee involvement. No mandatory creditor meetings. Professional fees are typically lower than a comparable Chapter 7 case with the same asset base.
Continuity for employees and customers. When a strategic buyer takes the going concern out of the assignment estate, employees and customers experience a shorter and less disruptive transition than a Chapter 7 liquidation typically produces.
Owner and board control the timing. An ABC is a voluntary process. Timing is set by the board in consultation with the assignee. There is no involuntary petition risk from creditors.
What the Finance Function Delivers in an ABC.
Clean books as of the assignment date. The assignee inherits the books. If they are not current, the assignee's first weeks are spent reconstructing rather than selling. Preparation before assignment is the highest-value work.
Complete creditor and claim schedule. Every known creditor, contact information, and estimated claim amount. Provides the assignee's notice list and streamlines claim reconciliation later.
Contract inventory. Which contracts have assignment provisions, which don't, which have terminations triggered by assignment. Determines what the buyer of a going concern can pick up.
Payroll and tax status. Final payrolls processed. Payroll tax deposits current. Sales tax returns filed. Trust-fund exposures identified and remediated where possible before assignment.
If Wind-Down Is on the Table
The Preparation Work Determines Whether ABC Is a Real Option.
We prepare the finance function for an assignment — clean books, complete creditor schedule, contract inventory, tax status — so that an ABC is available if the board decides to use it. Working alongside restructuring counsel.
Tell Us the Situation
Where the Business Is.
The industry, the state, whether counsel is engaged, and what the timeline looks like. Same-day response.
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