An Assignment for benefit of Creditors can be considered by business owners who don’t want to seek protection under a Chapter 11 business bankruptcy. This option should only be taken into consideration when the business is no longer sustainable due to an unprofitable product line and/or a mountain of debt. Chapter 7 and Chapter 11 business bankruptcy differ from an assignment for benefit of creditors. In fact, it is a substitute for Chapter 7 bankruptcy and business owners who need reorganization, not closure, must not consider it. Businesses that need restructuring must opt for Chapter 11 bankruptcy instead.
State laws govern an Assignment for Benefit of Creditors, therefore, it could vary from one state to another. It is supervised by state courts. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. The assignee is usually chosen by the business owners and the creditors and it is crucial that the assignee is reputed and experienced. You need to take note that in the case of a business bankruptcy, it is the court that chooses the case trustee. The business assets must be assigned by the business owner to an assignment estate.
A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After he sells the assets, he pays the creditors, deducts fees and costs, and returns the balance to the business owner.
All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. A list of all creditors are filed by the business owner. Creditors are then notified by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. The business becomes hollow the moment that the assets are transferred to the assignment estate. Even if a case is filed against the business, the creditor wouldn’t get anything.
A business owner must choose Assignment over business bankruptcy when the market price of all the business assets is inadequate to cover the debts. Assignment is less formal than a business bankruptcy process and moves much faster. Creditors cannot object to any sale made by the assignee. However, until the other party gives consent, an assignee could not force transfer contracts and leases. In a chapter 7 or Chapter 11 business bankruptcy, no such consent is required. Therefore, business owners with franchisees must not consider an Assignment, but a bankruptcy.
