By: Lesley J. Adam
The ABC Option: Assignment for the Benefit of Creditors as an Alternative to Bankruptcy in Minnesota.
An assignment for the benefit of creditors (ABC) is a procedure by which a debtor voluntarily assigns its property to an assignee (similar to a receiver) who is responsible for using the property to pay the debts of the debtor. For practical purposes, an ABC is an insolvency proceeding governed by state law rather than federal bankruptcy law. ABCs can be used by individuals as well as businesses looking to facilitate the sale of business assets and distribution of proceeds to creditors.
Current Minnesota law contains some provisions on ABCs, but is not comprehensive. As a result, ABCs have not been used in Minnesota as another option for individuals or companies in financial trouble to pay creditors. On February 20, 2012, the Senate passed H.F. No. 382 which seeks to make ABCs an alternative and usable remedy in Minnesota. This legislation was passed by the House last spring and will now be sent to the Governor for signature.
While we wait final passage of the law, debtors should look to consider whether an ABC is a viable alternative to bankruptcy. Potential benefits of an ABC could include:
- The Assignee is selected by the individual or business and is not court appointed.
- There is usually less notoriety than with a bankruptcy.
- Cost effective.
- Less formal process.
- Ability to move quickly which can help preserve asset values.
- A third party can acquire title to the assets in a purchase transaction.
- Contractual obligations can be negotiated and resolved efficiently.