Gordon Rees Scully Mansukhani, LLP
MONTH-IN-BRIEF (Aug 2024)
Coming from the Uniform Law Commission: A Uniform or Model State Law on Assignment for the Benefit of Creditors
By Edwin E. Smith, Morgan, Lewis & Bockius LLP
In an assignment for the benefit of creditors (often referred to as an “ABC”), an assignor in financial distress assigns the assignor’s assets to an assignee that then liquidates the assignor’s assets and distributes the proceeds to the assignor’s creditors towards payment of their claims. The assignment is a state law alternative to other procedures available to the assignor for winding up its business, such as becoming a debtor in a federal bankruptcy case or the subject of a state law receivership. However, in many cases, an assignment will be more flexible and less costly than the other alternatives.
Laws on assignments for the benefit of creditors and the uses of assignments vary from state to state. In some states, the assignment is a common law procedure with little or no statutory guidance or court supervision. In other states, the procedure is statutory and court supervised. In some states, an assignment for the benefit of creditors is a commonly used procedure for winding up an assignor’s business. In other states, the procedure is not or is rarely used. The only common uniform statutory thread through this maze of the various state laws and practices is the status of the assignee as a “lien creditor” under Article 9 of the uniformly enacted Uniform Commercial Code for purposes of applying the Article 9 priority rules.
