Assignment for the Benefit of Creditors
Lakelaw is the Chicago bankruptcy law firm that can solve your business problems without bankruptcy. An assignment for the benefit of creditors is a formal, voluntary transfer of your business and its assets to a private trustee – an assignee. There is no public record of a bankruptcy filing. The assignee is a trustee for the benefit of all creditors. But the assignee is interested in doing what is best for you and your business too. There is no court, no judge, no creditors committee and no trustee. Expenses are much lower than they would be in bankruptcy. The assignee can work cooperatively with your bank. The assignee can put your company’s assets up for auction to the highest bidder – even if the highest bidder happens to be a company with which you might be associated in the future. The assignee will liquidate your assets and pay the proceeds to your business’ creditors in accordance with their respective priorities. You might be able to work out financing for a new company or enterprise to acquire the assets from the assignee at the assignee’s sale. The purchaser at the assignee’s sale is not liable for the former enterprise’s debts unless it is deemed to have successor liability. Naturally, we would try to avoid any imposition of successor liability in the case of an assignee’s sale. An assignment for the benefit of creditors is faster and cheaper than bankruptcy.
Frequently Asked Questions – Illinois Assignment for the Benefit of Creditors
Is this a bankruptcy case?
No, an assignment for the benefit of creditors is a common law procedure recognized in Illinois for over 100 years. It allows a corporation to transfer all its assets to a person who will then liquidate the assets and use the proceeds to pay the creditors in accordance with their claims.
Who is the assignee?
The assignee is an individual who is qualified by reason of experience and education. Sometimes, the assignee may serve as a bankruptcy trustee but frequently, the assignee is an individual who is involved in the debt restructuring or turnaround management business.
What are the qualifications for the assignee?
The assignee must be free from conflicts of interest. He must be bonded. He must have an appropriate relationship free from conflicts with the lender, any particular creditor or the debtor.
Will the assignee pursue preferences or fraudulent transfers?
The assignee has the right to pursue these actions to the extent allowed by Illinois law. The Bankruptcy Code does not apply.
What priorities of payment apply?
The Bankruptcy Code priorities apply although by custom and not by force of law.
How will the assignee conduct a sale of assets?
Sales of assets must be done in a commercially reasonable manner. Usually, a sale will be advertised in the auction pages of major newspapers or trade publications as well as through internet channels.
Has Lakelaw handled assignments for the benefit of creditors?
Lakelaw has represented assignors as well as assignees for the benefit of creditors. Among the assignees represented by Lakelaw include Howard Korenthal (Morris Anderson), Alex Moglia (Moglia and Associates) and Howard Samuels (Rally Capital). Lakelaw’s principal attorney, David Leibowitz has been a chapter trustee for more than 25 years and is also qualified to serve as an assignee for the benefit of creditors.
Our client sold paintings and art-work with a strong focus on television advertisements in the months after the holiday season. It had been successful with this model for many years. During the recession, people did not seem to be very interested in discretionary purchases and business lost a great deal of money. It turned out that this was not just a one-time event. The business model no longer worked because of competition from the internet and other business channels. The business was facing millions in liabilities. The owners were scared because they faced personal liability. Here’s what we did:
- We found a specialized appraiser to determine the liquidation value of the inventory
- We interviewed numerous firms specializing in retail liquidations and helped the company hire one with experience in dealing with retail art.
- We met with the company’s bank to assure it that it had a strong likelihood of being paid through the voluntary liquidation, so the bank worked with the company and supported its liquidation efforts by advancing cash needed to start the process along.
- We helped the company select an experienced and capable turn-around expert to serve as its assignee for the benefit of creditors.
- We worked with the assignee to fight off claims of the more aggressive creditors who wrongly asserted that the company and its principals committed fraud
- We obtained defense coverage from the Officers and Directors liability insurance carrier against the wrongful claims filed by creditors against the company’s president and directors.
- The company sold all of its inventory, paid the bank in full, paid all priority creditors in full and paid an 8% dividend to unsecured creditors.
- All claims against the company’s officers and directors were dismissed.
If this were a Wisconsin case, we would have achieved the same result using either a Wisconsin Chapter 128 receivership or Wisconsin Chapter 180 corporate dissolution procedures.