Guide
Assignment for the Benefit of Creditors
An assignment for the benefit of creditors, usually shortened to ABC, is a state-law wind-down. The company transfers everything it owns to an independent assignee, who liquidates it and distributes the proceeds to creditors in order of priority. It is the closest thing small business has to a foreclosure: an orderly, supervised handover of the assets when the debts have outrun them. It is also the point at which most owners discover that some of their options expired a few months earlier.
What actually happens in an ABC
The company's board and shareholders approve a general assignment. Every asset transfers to an assignee, a professional fiduciary chosen by the company rather than appointed by a court.
The assignee takes control, notifies creditors, and sells the assets. Frequently that sale is of the business as a going concern, not a piecemeal liquidation, because a functioning business is worth more than its equipment.
Proceeds are distributed by priority: secured creditors first, then administrative costs, then priority claims such as certain wages and taxes, then general unsecured creditors. Equity holders are last and usually receive nothing.
Why companies choose it over Chapter 7
Speed and cost. An ABC is a contractual and state-law process rather than a federal court proceeding, so it typically moves in weeks rather than months and carries lower professional fees.
Control over the assignee. In Chapter 7 a trustee is appointed. In an ABC the company selects the assignee, which in practice means selecting someone who understands the industry and can run a credible sale process.
Discretion. An ABC generates far less public record and press than a bankruptcy filing, which matters when you are trying to sell a business whose customers are still deciding whether to place next month's order.
Better outcomes for buyers, which loops back to better outcomes for creditors. Buyers can acquire assets from an assignee relatively quickly and with reasonable comfort, and a faster sale preserves more value.
What it means for the owner personally
Personal guarantees do not disappear. This is the single most misunderstood point. An ABC deals with the company's obligations. If you personally guaranteed the bank line, the equipment lease or the building, those guarantees survive and the lender can pursue you directly.
Unpaid payroll taxes generally follow the responsible person as well. Trust fund liability is personal by design and is not cleared by winding down the entity.
Directors and officers can face claims for decisions made while the company was insolvent, because duties shift toward creditors once a company is in the zone of insolvency. That is a reason to take advice early rather than trade through it hoping the quarter turns.
The sale you may still be able to run instead
An ABC is what happens when the debts have outrun the enterprise value. But plenty of businesses arriving here still have real enterprise value: customers, contracts, trained staff, a brand people recognise. The problem is a balance sheet, not an operation.
If the operating business is genuinely viable, a solvent sale nearly always returns more to creditors than a liquidation does, and it can leave the owner with something rather than nothing. It also removes personal guarantee exposure by paying the debt rather than by walking away from it.
The constraint is time. A sale process needs months, and the option quietly closes as cash runs out, as suppliers move to cash on delivery, and as the staff who make the business worth buying start leaving. **The window is widest at the moment the problem first becomes obvious, and it narrows every week after that.** If you are reading this page because it might apply to you, the conversation to have this month is whether a sale is still available, not whether the wind-down is done correctly.
State differences matter more than you would expect
ABCs are creatures of state law and the procedure genuinely differs. California has a well-developed practice with detailed creditor notice requirements. Delaware ABCs involve court supervision, which changes the timeline. Florida has its own statutory process, and New York, New Jersey, Illinois and Massachusetts each have their own.
Some states have very little ABC practice at all, and in those an alternative wind-down or a Chapter 7 may be the more practical route. This is jurisdiction-specific enough that general reading, including this page, is a starting point rather than a plan. Use an insolvency attorney licensed where the company sits.
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