When your small business can no longer hack it and it's time to close up shop, there is an alternative to bankruptcy.
Assignment for the Benefit of Creditors is a way for certain companies to quickly and quietly dissolve without submitting to the control of the bankruptcy court, as the LA Times explains in this article.
Instead of a U.S. Bankruptcy Court appointing a trustee to liquidate the company, the business owner hires an assignee -- often an insolvency lawyer or specialist with experience in ABCs -- to sell the company's assets and distribute the proceeds to creditors. The assignee has a fiduciary duty to try to get the highest price for the assets."We signed the assignment and right away [the assignee] took over everything," said Gurmeet Singh, who used an ABC to close his formerly 40-person business, Precision Gear of Corona, two years ago. "He had a locksmith right there and he got the locks switched and we were out of business. Then he got some people in to take inventory of things."
An ABC sell-off distributes the company's assets at pennies on the dollar, and gets the owners off the hook for liabilities. Thus, ABCs are only available to corporations and LLCs, and only make sense if the owners have not signed personal guarantees, which many creditors require for small business credit.
"I don't want to mislead people, because one thing is, to the extent they have made personal guarantees, whether it be for a product or on their loans, they are not released from those" in a general assignment or a bankruptcy filing, said attorney Robert L. Cohen, who runs Alternative Bankruptcy Concepts Inc. in Buena Park.
