Business owners who do not want to seek protection under Chapter 11 business bankruptcy can consider an Assignment for benefit of Creditors. This option should only be taken into consideration when the business is no longer sustainable because of an unprofitable product line and/or a mountain of debt. An assignment for benefit of creditors is different than Chapter 7 and Chapter 11 business bankruptcy. In fact, it is a substitute for Chapter 7 bankruptcy and business owners who need reorganization, not closure, must not consider it. Businesses that need restructuring must opt for Chapter 11 bankruptcy instead.
An Assignment for Benefit of Creditors is a process that is governed by state law and therefore it varies from state to state. It is supervised by state courts. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. The assignee is usually chosen by the business owners and the creditors and it is important that the assignee is reputed and experienced. You need to take note that in the case of a business bankruptcy, it is the court that chooses the case trustee. The business owner has to assign the business assets to an assignment estate.
A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After he sells the assets, he pays the creditors, deducts fees and costs, and returns the balance to the business owner.
All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. The business owner files a list of all business creditors. Creditors are then notified by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. Once the assets are transferred to the assignment estate, the business becomes hollow. Even if a case is filed against the business, the creditor wouldn’t get anything.
A business owner must choose Assignment over business bankruptcy when the market price of all the business assets is insufficient to cover the debts. Assignment is less formal than a business bankruptcy process and moves much faster. Creditors cannot object to any sale made by the assignee. However, an assignee cannot force-transfer leases and contracts until the other party consents. No such consent is required in a Chapter 7 or Chapter 11 business bankruptcy. So, a business owner with franchisees should consider bankruptcy, not Assignment.
An Assignment for Benefit of Creditors is a process that is governed by state law and therefore it varies from state to state. It is supervised by state courts. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. The assignee is usually chosen by the business owners and the creditors and it is important that the assignee is reputed and experienced. You need to take note that in the case of a business bankruptcy, it is the court that chooses the case trustee. The business owner has to assign the business assets to an assignment estate.
A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After he sells the assets, he pays the creditors, deducts fees and costs, and returns the balance to the business owner.
All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. The business owner files a list of all business creditors. Creditors are then notified by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. Once the assets are transferred to the assignment estate, the business becomes hollow. Even if a case is filed against the business, the creditor wouldn’t get anything.
A business owner must choose Assignment over business bankruptcy when the market price of all the business assets is insufficient to cover the debts. Assignment is less formal than a business bankruptcy process and moves much faster. Creditors cannot object to any sale made by the assignee. However, an assignee cannot force-transfer leases and contracts until the other party consents. No such consent is required in a Chapter 7 or Chapter 11 business bankruptcy. So, a business owner with franchisees should consider bankruptcy, not Assignment.
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