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What is an ABC,

Definition: As defined by the American Bar Association: “An assignment for the benefit of creditors (ABC) is a business liquidation device available to an insolvent debtor as an alternative to formal bankruptcy proceedings. In many instances, an ABC can be the most advantageous and graceful exit strategy. This is especially true where the goals are (1) to transfer the assets of the troubled business to an acquiring entity free of the unsecured debt incurred by the transferor and (2) to wind down the company in a manner designed to minimize negative publicity and potential liability for directors and management.”

Source: American Bar Association

For those facing insolvency, an ABC can be a very beneficial tool as an alternative to other wind-down structures.

Pros and Cons

Pro: An ABC can save time. An Assignment for the Benefit of Creditors can provide a less time-consuming process than a typical bankruptcy, which often involves lengthy court proceedings.

Pro: An ABC can save money. Whereas bankruptcy proceedings require ongoing legal expertise, an ABC employs an Assignee who is selected by the company management and who may have expertise that is specific to the assignment.

Pro: An ABC is often more flexible than bankruptcy.

Con: There is no automatic stay in place as there would be in a bankruptcy process. A stay limits litigation risk for the liquidating company while in an ABC there is no such protection.

Pro: A sale is less likely to be challenged than it might in a bankruptcy. This is because the company management selects an Assignee who may have experience and expertise that is related to the assignment.

Pro: Negative press can be minimized by the use of an ABC. Bankruptcy headlines can come across as inherently negative while the use of an ABC may be seen with a less negative connotation.

Con: An ABC can be non-judicial, which can save time but may not be advantageous in all situations.