An “Assignment for the Benefit of Creditors” (an “ABC”) is an alternative to bankruptcy available under California law—as well as the laws of other states. An ABC is often a more cost-efficient alternative to filing a bankruptcy case, and ABCs are often employed by secured lenders when speed and flexibility are required in a sale of the assets of the entity and the tools available in a bankruptcy proceeding (such as the ability to reject leases or bind certain classes of creditors) are unnecessary. An ABC continues to be a very important tool that is routinely employed to assist in the restructuring of Southern California businesses.
In a recent decision, the United States Court of Appeals for the Eleventh Circuit decided that the assignee of an entity which had previously made a general assignment for the benefit of its creditors under Florida law could not file a bankruptcy case for the entity. Ulrich v. Welt et al. (In re Nica Holdings, Inc.), —F.3d—, 2015 WL 9241140 (11th Cir. 2015). The assignee, who had been accused of breach of fiduciary duty in his conduct of the assignment estate, sought to use the bankruptcy case to stop and then settle litigation by a creditor unhappy with the course of the assignment.
The 11th Circuit first made a couple of general observations regarding ABC’s, including that “[e]ntities may opt to use the ABC process because in their particular circumstance, it’s more flexible, fast, more private, and less supervised than bankruptcy.” Id., 2015 WL 9241140 *6 (citation omitted). The 11th Circuit also observed that, “ABCs and bankruptcies are alternative proceedings. An entity deliberately chooses one or the other.” Id.