Frequently Asked Questions about Assignment for the Benefit of Creditors (ABC)
What is an Assignment for the Benefit of Creditors? An assignment for the benefit of creditors (ABC) is a voluntary business liquidation proceeding, available as an alternative to formal bankruptcy proceedings. In California, ABCs are governed by primary governing law Code of Civil Procedure sections 493.010 to 493.060 and sections 1800 to 1802. Assignments are governed by state law not federal statute therefore they do not go through federal court and will not have a case number related to the proceedings.
What is an Assignee? An assignee is a neutral person, company, or entity who receives the transfer of property, title, or rights from a contract. The assignee receives the transfer from the assignor (debtor).
Is an Assignee the same as a Trustee in Bankruptcy? The assignee, who is functionally similar to a bankruptcy trustee, is an independent fiduciary selected by the company and typically has experience in insolvency matters, the relevant industry, or both. A bankruptcy trustee is appointed by the courts.
What is a Creditor? A creditor is an individual or entity to whom an obligation is owed. Most commonly, the obligation owed is an obligation to pay money for some prior services or to pay off a loan.
If I am owed money and the company acknowledged the debt, do I still have to file a claim? Yes, you must file a claim. Simply being owed money does not guarantee your eligibility to receive funds in a potential distribution. ABCs are governed under legal statute Cal. Code Civ. P. §1802., therefore in order to be eligible for any financial distribution by the assignee on behalf of the debtor estate, all potential creditors need to file a claim with supporting documentation under the ABC within the stated deadline to file the claim.
Is there a deadline to file a claim? Yes, it is called the bar date. The assignee establishes this date in accordance with CCP §1802 to be on or by 180 days after commencement of the ABC.
How do I get my outstanding invoices paid? Any invoices due on or before the commencement of the ABC are now subject to the ABC process. A claim for the total due must be filed with the assignee before the bar date.
How do I know whether my claim is classified as secured, priority or unsecured? Claim classifications are based on legal definitions of the debt owed. (a) Secured Creditor(s) – Are creditors with a security interest in the debtors’ assets. These are properly perfected claims (liens, UCC1 filings). These claims must be paid in full before any other distributions are made. (b) Priority Creditor(s) – Are employee wage claims, taxes, and other governmental agency claims. These must be paid in full before distributions to other unsecured creditors are made. (c) Unsecured Creditor(s) – Most claims fall under this category. These claims are paid only after secured and priority claims are paid in full. If there are insufficient funds to pay all unsecured creditors in full, claims are paid on a pro rata basis (distributed in equal proportion) to ensure that no creditor receives a greater percentage of proceeds than another unsecured creditor.
What does it mean to be a pro-rata claimant? The term "pro rata" means "proportionately allocated". Following bankruptcy guidelines, each creditor receives a share of the remaining distribution based on the size of their allowed claim in order to make an equally proportional pay out.
Should I file a POC or POI or both? You should file a Proof of Claim (POC) if you are a creditor or noteholder who has an outstanding balance owed by the insolvent company. You should file a Proof of Interest (POI) if you are an investor / equity holder of the insolvent company.
Can I add interest to my claim? Secured creditors are entitled to add interest until their claim is paid in full. Priority creditors with sales and use tax claims can include interest until their claim is paid in full. Unsecured creditors can claim interest only after the principal is paid for all unsecured claims submitted and owed and only to the extent that a particular creditor is entitled under contract or judgement to assert such claim for interest prior to the commencement of the ABC.
What happens once the deadline has passed? Once the bar date has passed, the assignee will begin the review and verification of the submission claims.
How long does the process take to receive a distribution on my claim? Once claims are verified and the administrative process is complete, any available funds will be distributed to creditors in order of priority. If secured and priority claims are paid in full, distributions will be made to the unsecured creditors. Depending on the complexity of the priority scheme of distribution, unsecured creditors can receive a pro-rata distribution on their claims anywhere from 90-180 days after the bar date.
What are the reasons that my claim would still be outstanding 12 months or more after the assignment commencement? A distribution may be delayed in the event of unresolved legal or tax issues. Most often, tax close outs, final return filings and payments take a great deal of time to complete. Governmental offices, i.e. labor departments, can hold up distributions with claims filed on behalf of former employees and these claims need verification to complete. In some cases, the collection of accounts receivable, tax refunds and final asset sales take can take several months to complete. Distributions cannot be made until all the monies to be distributed have been collected. In rare cases, lawsuits and investigations into activities prior to the assignee taking over, hold up the distribution of monies while the legal proceedings move through their task.
Does the assignee dissolve the company/entity? No. The assignee’s primary role is to protect and sell off the remaining assets of the company, shut down operations, close out accounts and minimize the costs in an effort to recoup funds for the creditors. Dissolving an insolvent entity can be costly and does not benefit the creditors.
What is the easiest way to get an update on the proceedings? Updates are posted monthly on the ABC landing page under the Status Update tab.
As a creditor, I’m interested in the company assets – who would I contact? Please contact the assignee at the email address or phone number posted on the creditor notice.