When a company’s liquidity is exhausted, the next question is not “is value lost?” but “how much value will be lost?” There are many answers to this question, some of which depend on the next steps a company takes.
While bankruptcy is the most widely recognized path, it may not be the best solution from efficiency and effectiveness perspectives. In certain situations, an Assignment for the Benefit of Creditors (ABC) can provide for a faster, more flexible, and more controlled alternative to the more traditional routes of Chapter 11 or Chapter 7.
The decision as to how to restructure is often presented as a binary choice between bankruptcy and liquidation. However, companies and lenders have a broader set of tools available to preserve value and maximize recoveries, including ABCs, Article 9 sales, receiverships, and consensual out-of-court solutions. In reality, outcomes are driven less by the process selected and more by the effectiveness of execution.
What is an ABC?
An ABC is a voluntary, state law process in which an insolvent company transfers its assets to an independent fiduciary, known as the assignee. The company selects the assignee, who then manages, markets, and monetizes its assets and distributes the proceeds to creditors in accordance with applicable priority rules.
Although usually described as a liquidation, an ABC is more accurately a structured asset sale process. Depending on the situation, the process can encompass going-concern sales, carve-outs, or the monetization of intangible assets such as customer lists, patents, and website addresses, among others. ABCs are typically pursued when restructuring or refinancing options are no longer viable and a value-maximizing exit is required. If properly executed, an ABC provides a controlled framework for monetizing assets while preserving value.
For companies, ABCs offer a more streamlined and discreet alternative to bankruptcy, with lower administrative burden and greater flexibility in structuring transactions. For lenders, the process can provide a more efficient path to recovery, enhanced visibility into execution, and greater influence over key decisions such as assignee selection, while enabling structured and competitive sale processes. Accordingly, secured lenders often support ABCs when they are expected to deliver superior outcomes as compared to Chapter 7 liquidation or extended Chapter 11 proceedings.
Controlled sale processes such as ABCs consistently outperform passive liquidation approaches. Successful ABCs generally focus on three elements:
- Isolating value, including intellectual property, software, data, and customer relationships as well as tangible assets such as real estate, equipment, inventory
- Preparing assets for market by addressing liabilities, maintaining key operations where appropriate, and facilitating diligence
- Executing a competitive sale process through targeted outreach and structured bidding
When properly coordinated, these elements can materially improve recoveries.
Key Factors That Influence Outcomes
Asset quality is paramount. Companies with clearly identifiable and transferable assets are more likely to attract strategic buyers and achieve greater outcomes. Support from secured lenders and key stakeholders is equally important, as it facilitates execution and reduces the risk of disputes or an involuntary bankruptcy filing. Finally, timing is critical since delays can quickly erode value and reduce available options. The most effective ABC processes are well-prepared, adequately funded, and clearly communicated from the onset.
In a recent engagement, a venture-backed technology company facing a liquidity shortfall and lacking access to additional capital pursued an ABC to facilitate an orderly exit. Rather than undertaking a passive wind-down, the process focused on actively marketing and selling the company’s intellectual property, software platform, and related assets. The proceeds funded the wind-down and generated recoveries for creditors. This example highlights how an ABC can operate as a structured monetization process, rather than a purely administrative liquidation.
Although often viewed as a simple liquidation tool, in practice an ABC provides a flexible framework for structured asset sales which can enhance stakeholder recoveries if done so in a way that preserves value and optimizes outcomes.
Companies and their lenders should be focused on choosing a process that provides for effective execution and minimizes value erosion. When properly executed, an ABC is not a fallback option for owners and operators, but rather a strategic solution that can outperform traditional bankruptcy in both efficiency and value.
Jeffrey Perea is a Managing Director with Getzler Henrich, a Hilco Global company, based in Los Angeles. He has more than 25 years of experience advising companies and stakeholders on restructuring, valuation, and operational matters, with a focus on delivering practical, value-driven outcomes. He has extensive experience leading ABC engagements across multiple jurisdictions, including California, Nevada, Utah, New York, and Illinois.
Tasha Yektayi is a Senior Associate with Getzler Henrich, a Hilco Global company, with over eight years of experience in turnaround and restructuring, distressed credit, and middle-market finance. She advises management teams, sponsors, and lenders on liquidity management and operational turnarounds in both in- and out-of-court situations.
