As you will recall in our last column we discussed
workouts. In this column we will address Assignment for the Benefit of
Assignments for the Benefit of Creditors is roughly the equivalent of
Chapter 7 Bankruptcy. It is a liquidation of assets. Similar to the workout it
is voluntary and non-binding on the creditors. There is no automatic stay and
costs tend to be less expensive than a court proceeding.
In an Assignment, the debtor usually wants to go out of business and
provide for an orderly liquidation of its assets. Therefore a meeting of
creditors is usually not conducted. The creditors are contacted by the debtors'
attorney or an agent the debtors' attorney has contracted with to liquidate the
assets and if they agree, receive their pro rata distribution from the
liquidation of the assets. Since an Assignment is a voluntary agreement, the
debtor receives no formal discharge of its debts unless the creditors agree to
furnish a declaration that the debt has been satisfied upon receipt of their
Assignments and workouts are generally administered by third parties.
Several affiliates of the National Association of Credit Management operate
Adjustment Bureaus to handle these orderly reorganizations and liquidation's.
The third party assumes control of the operation and runs the business for the
benefit of the creditors thus ensuring that the creditors realize maximum value.
One of the other benefits, in addition to reduced costs, of participating
in a workout or assignment is that unlike court proceedings there are no fixed
time schedules or rules. Bankruptcy is composed of rules and schedules whereby
certain documents and events must either be filed or take place. In an
assignment or workout there are no constraints. This gives the third party an
opportunity to get as much money as possible for the assets being liquidated
without the appearance of a distressed sale.
THE PRECEDING IS GENERAL INFORMATION ONLY!
FOR LEGAL ADVICE, CONTACT YOUR ATTORNEY!
I wish you well.