When a business is unfortunately forced to shut down due to debt, there are a variety of paths that can be taken to wind up the business. While bankruptcy is a well-known approach, businesses have another option known as the Assignment for the Benefit of Creditors.
What is an Assignment for the Benefit of Creditors?
An Assignment for the Benefit of Creditors, commonly referred to as ABC, is an alternative to bankruptcy in which the business turns over its assets to creditors. An ABC is similar in many ways to bankruptcy but is often a cheaper and faster process. Additionally, an ABC permits the liquidating business to retain more control over the process than it would in a bankruptcy. Specifically, the liquidating business selects the assignee to oversee the process.
How does the Assignment for the Benefit of Creditors Process work?
In Florida, an ABC process is governed by statutes §§ 727.101-727.117. First, the business that wishes to liquidate its assets, selects an assignee to act in a capacity similar to a bankruptcy trustee. This assignee is typically a professional, such as a lawyer or accountant, familiar with the ABC process. Once an assignee is selected, an Assignment document containing, amongst other things, a list of creditors and the debtor’s assets is filed with the clerk of court in which the debtor is located. Once the Assignment is file, the assignee must file notice of the Assignment by publication in a newspaper once a week for four consecutive weeks. Additionally, the assignee must mail notice to all known creditors within twenty days after filing the Assignment petition. Like the trustee in bankruptcy, the assignee then is responsible for liquidating the business assets and distributing them to creditors. The statutes outline the order for distributing assets and various procedures the assignee must follow.
Overall, the Assignment for the Benefit of Creditors process is a faster and quicker way for businesses to wind-down their business without the stigma of bankruptcy.