The assignment for the benefit of creditors sounds exotic until you watch one run. Here is the lifecycle of a well-executed California ABC, from decision to final distribution.
1. The board decision. Directors resolve that the company is insolvent and that an orderly liquidation serves creditors best, and authorize a general assignment. Corporate formalities matter here — the resolution, and shareholder approval where required for a disposition of substantially all assets under Corporations Code §1001, get documented cleanly because they’ll be examined later.
2. Selecting the assignee. A professional fiduciary firm — this is a specialized industry — is chosen and negotiates its fee structure. Due diligence on the assignee is the owner’s last major decision; after assignment, control passes completely.
3. The assignment agreement. The company executes a general assignment transferring all assets — equipment, receivables, inventory, IP, causes of action — to the assignee in trust for creditors. From this moment, the company’s role is cooperation, not control.
4. Notice to creditors. The assignee notifies all creditors, who submit claims by a bar date. California codified key mechanics — see CCP §1802 — including creditor notice requirements.
5. Liquidation. The assignee sells assets — frequently through a pre-negotiated sale that closes within days of the assignment, preserving going-concern value — collects receivables (with statutory authority under CCP §1800 to pursue preference-style recoveries in some circumstances), and reduces everything to cash.
6. Distribution by priority. Secured creditors from their collateral; then administrative costs; then priority claims — employee wage claims carry statutory priority, and unpaid wages remain a personal minefield for owners regardless (Labor Code §558.1 imposes individual liability on owners for certain wage violations — pay employees first, always); then general unsecured creditors pro rata.
7. The owner’s parallel track: negotiating personal guarantee settlements with lenders and landlords while the estate winds down — guarantees survive the ABC and are the real endgame for most owners.
Timeline: a pre-packaged asset sale can close in two weeks; full administration typically runs several months. Compare that to a year-plus of Chapter 7 while value evaporates. Orderly beats chaotic, and early beats late — every time.
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