When a business needs to be wound-down, it is usually sold or liquidated and the proceeds distributed to creditors. Sometimes a Chapter 11 makes the most sense. While other times a Chapter 7 bankruptcy or a corporate dissolution is best. Determining which path an insolvent company should take depends on the specific facts and circumstances, as some options may not fit a financially troubled company.
Assignments for the benefit of creditors are state court-overseen liquidation proceedings, typically for businesses, but they can also be used for individuals. In this type of proceeding, pursuant to state statutory law, the “assignor” assigns the assignor’s non-exempt assets to an “assignee,” a fiduciary. The assignee is to, among other things, account for and liquidate the assignor’s assigned assets, and distribute the proceeds, for the benefit of the assignor’s creditors.
When it comes to the liquidation of assets, as a general rule, the assignee will assemble the assignor's assets. Assets are liquidated either in bulk or piecemeal through private or public sales, depending on which method is expected to yield the highest recovery.
Assignments for the benefit of creditors are similar to Chapter 7 cases in that debtors in Chapter 7 cases surrender certain assets to Chapter 7 trustees for liquidation, while in assignments assignors assign assets to assignees for liquidation. Similarly, in each case, there is a fiduciary who is overseen by a court and whose conduct is intended to ultimately benefit creditors.
There are, however, many important differences between the two proceedings, such as in Chapter 7 cases, an automatic stay is invoked upon the debtors' filing that prohibits, among other things, certain creditor conduct; such is not the case in assignment cases. Another example is that there is no Colorado law preference claim unlike under bankruptcy law. Also, unlike bankruptcy where a trustee is appointed without any input of the debtor, in assignments, the assignee often has a role in choosing who the assignee will be. The above differences, including others, result in there generally being many pros and cons between bankruptcy and assignment filings.
Our Denver-based law office has significant experience in assignments for the benefit of creditors, representing assignors and assignees in furtherance of their duties and obligations.
We understand the relative advantages and disadvantages of these types of cases, appreciate what each party must undertake in assignments, and welcome the opportunity to represent interested parties in these state court liquidation matters.
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