Simon PLC Attorneys & Counselors – October 2020 Memorandum


Bloomfield Hills, Michigan – An assignment for benefit of creditors (“ABC”) is an alternative to formal bankruptcy proceedings and is governed by state law (N.B. ABC statutes and laws vary from state to state.  There is minimal case law regarding ABCs, and most of the reported decisions are over one hundred years old.  This article is based upon Michigan’s ABC statute and the author’s practical experience.)  An ABC involves a voluntary transfer or assignment of all the debtor’s assets to a third party chosen by the debtor.  The third party, termed an ‘assignee’, then liquidates the assets in accordance with the assignment statute.  There is minimal court supervision, although the assignee is required to periodically report to the Court and must give notice of the assignment to the creditors of the debtor.   

Although both receivership and an ABC involve liquidation of assets under court supervision, a receivership is often imposed by a creditor on an unwilling debtor.  In contrast, an ABC is a voluntary process.  Another key difference is that while the choice of a receiver is subject to the discretion of the court, the assignee is chosen by the debtor.

An ABC allows a debtor to efficiently liquidate its asset while at the same minimizing costs associated with multiple creditors attempting to either block a sale or seize an asset.  The assignee is empowered to operate a business as a going concern, terminate burdensome contracts and promptly liquidate assets.  This can maximize value and allow for efficient administration.

Also, any sale of the assets can be approved by the court, thereby giving buyers the comfort that the sale will not be collaterally attacked later.  ABCs are also more flexible and less costly than a bankruptcy proceeding.

Common Questions

How is liquidation started?

Assignee files a complaint with state court for acceptance of the assignment

What and who controls the process?

The ABC statute controls the process.  Any secured creditor must also be involved, as their consent is needed prior to the sale of any of their collateral

Who selects the assignee?

The debtor selects the assignee. The choice of the assignee can be one of the most critical decisions surrounding control and disposition of a distressed asset.  The capabilities of the assignee, and associated professionals, often have a direct impact on the amount of recovery to the creditor as well as the costs to the estate

Is there a stay on creditor activity?

Not necessarily.  The Assignee can seek an order from the Court providing for a stay.

Can liens be stripped from the assets?

The Court in its equitable powers may approve a sale free and clear of liens but it is not mandatory

How are assets sold?

By order of the Court.

What happens if the debtor files Bankruptcy?

If it has been more than 120 days since the assignment was filed, no assets are turned over to the Bankruptcy Trustee.  If less than 120 days have passed since the making of the assignment, the assets are turned over to the bankruptcy estate

Can preferences be recovered?


When is the case closed?

Within one year, unless the Court agrees to extend the deadline

How much does it cost?

Fees are subject to Court approval.

While an ABC is not a universal solution, it can provide a quick and efficient exit strategy from a difficult situation.  Furthermore, an ABC allows for operation of a business as a going concern. This is especially helpful in cases involving hotels, bars, restaurants, gas stations, and apartment buildings, or if the asset has greater value as a going concern.

Please contact Simon PLC Attorneys and Counselors if you would like advice on how to put an ABC to use for you as a debtor, or creditor, or as an alternative to bankruptcy or receivership.

N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.

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