NEW JERSEY ASSIGNMENT FOR THE BENEFIT OF CREDITORS
Our bankruptcy attorneys can represent your business in an assignment for the benefit of creditors., business bankruptcy attorneys, filing business bankruptcy in north jersey, a new jersey assignment for the benefit of creditors (an “abc” or “assignment”) is a liquidation under statute. unlike a chapter 11 bankruptcy, an assignment for the benefit of creditors is not a reorganization process, and the business does not emerge from insolvency. rather, the subject business is liquidated through this state court process., how does an assignment for the benefit of creditors work in nj, assignments for the benefit of creditors have become increasingly well known. many insolvency professionals prefer liquidation of businesses through assignment for the benefit of creditors in lieu of liquidation through a chapter 7 bankruptcy . while individuals (people) can technically use assignment for the benefit of creditors for an individual liquidation, the vast majority of assignments for the benefit of creditors are commenced on behalf of corporate debtors. , how is an assignment for the benefit of creditors started.
An assignment for the benefit of creditors is commenced by the execution of a Deed of Assignment by the liquidating company, referred to as the “assignor.” This deed is executed on behalf of the assignor with the express consent and authority to take that action, whether that’s a sole member of a limited liability company, several principals of a corporate, a board of directors and/or shareholders.
In either instance, the company’s governing documents must be reviewed, and corporate counsel, if any, must be consulted to ensure that a decision to make an assignment is done with proper corporate authority. In the instance of publicly traded companies, an assignment for the benefit of creditors can be utilized, but the potentially lengthy process of obtaining corporate approval from shareholders must be taken into consideration in advance.
Once corporate authority has been obtained, a Deed of Assignment is executed by a corporate officer. This Deed effectively transfers all of the rights, title and interests of the assignee to an independent, third-party fiduciary referred to as the “assignee.”
What Are The Duties Of An Assignee?
The assignee in an assignment for the benefit of creditors is analogous to a trustee in a Chapter 7 bankruptcy. If the assignee appointed by the assignor accepts the Deed of Assignment, the assignee has the duty to collect and account for all of the assignor’s assets, sell those assets, and to distribute the net proceeds for the benefit of the business’ creditors.
The assignee must ensure that the assignor has attached to the Deed of Assignment a list of assets and a list of creditors. The assignee then records the Deed of Assignment in the way real estate deeds are recorded. The assignee must also obtain a bond.
How Are Assets Sold In An Assignment For The Benefit Of Creditors?
Many assignments for the benefit of creditors involve the sale of the debtor company’s assets by the assignee. One significant benefit of an assignment for the benefit of creditors is that asset sales are generally faster than in Chapter 7 bankruptcy or Chapter 11 bankruptcy.
How Are Assets Distributed Among The Creditors?
If the assignee has collected funds for distribution to creditors, the assignee must distribute those funds to creditors which have filed timely claims in the assignment proceeding. Creditors receive distributions from the assignee pursuant to a priority schedule under applicable state law, including but not limited to a statute establishing the priority of one creditor over another.
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Attorney Melinda D. Middlebrooks & Attorney Joseph M. Shapiro have over 30 years of extensive bankruptcy experience. We handle cases from basic to the most complex. We offer a free, no-obligation consultation. From our office in Springfield, we work with clients throughout Union County and beyond by leading them through the legal process of numerous practice areas.
Call 973-218-6877 to speak with the experienced bankruptcy attorneys of Middlebrooks Shapiro. We’ll ensure you get the perspective you need to understand the full picture and the guidance to have a successful bankruptcy, rebuild your credit, and move forward with your new debt-free life.
At Middlebrooks Shapiro , our attorneys have over 30 years of bankruptcy law experience. From our office in Springfield, NJ, we help clients with the most basic or complex personal and business bankruptcy cases by leading them through the legal process of numerous practice areas .
Call 973-218-6877 to speak with the experienced bankruptcy attorneys at Middlebrooks Shapiro. We’ll ensure you get the perspective you need to understand the full picture and the right guidance to have a successful bankruptcy, rebuild your credit, and move forward with your new debt-free life.
Parsippany: (973) 538-4700
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Is an Assignment for the Benefit of Creditors like a Bankruptcy?
At first, an assignment for the benefit of creditors (ABC) may seem similar to a bankruptcy claim. However, upon a deeper look, it is clear that an assignment for the benefit of creditors is different. Similar to liquidation proceedings in chapter 7 or chapter 11 bankruptcy proceedings, an ABC can be used by either an individual or a business if they are going through significant financial difficulties. In both cases, the struggling debtor sells off all its assets in order to pay back its outstanding debts to its creditors. This mechanism helps to maximize the return for creditors.
An assignment for the benefit of creditors is distinct from bankruptcy proceedings because it is a much less formal process governed by state law rather than federal law. The informal nature of these proceedings means that it is faster and easier to marshal a debtor’s assets, liquidate same, and distribute proceeds equitably to creditors under an assignment rather than under federal bankruptcy law. Furthermore, an ABC often requires less court involvement and provides more flexibility to the assignee to make liquidation decisions as required. This is generally beneficial for both creditors and debtors because it is faster, less expensive, and more private than traditionally afforded bankruptcy liquidations.
Understanding Assignment for the Benefit of Creditors in New Jersey
In New Jersey, an assignment for the benefit of creditors is governed by New Jersey statutes that codify the preexisting common law. The proceedings are voluntary processes whereby the debtor designates an assignee who is empowered to marshal and liquidate (sell) the assets of the debtor and then distribute the proceeds of the sale to the debtor’s creditors. The assignee must ensure that all of the financial liquidations are done for the benefit of the creditors and with the sole goal of repaying outstanding debts. This is significant because in New Jersey, the debtor can choose its assignee rather than relying on a court-appointed trustee in bankruptcy who may not understand the nuances of the debtor’s finances. The ability to choose the assignee can be beneficial because an assignee with an understanding of the debtor’s finances can expedite the liquidation process rather than spend valuable time learning the ropes.
An ABC in New Jersey is generally cheaper than filing formal bankruptcy proceedings because it is faster and usually requires less litigation. The expeditious nature cuts down on the debtor’s and creditor’s legal bills and other costs associated with ongoing litigation. Still, creditors should be counseled to make sure that the liquidation is being conducted properly, and that the assignee is obtaining a fair return on the sale of the assets to maximize the recovery of the debts owed to the creditors.
FSKS is on Your Side
At FSKS, our attorneys are experienced in both bankruptcy and assignments for the benefit of creditors in New Jersey. We have a strong track record of success in the area of creditor’s rights and pride ourselves on being one of the strongest and most successful Creditors’ Rights firms in New Jersey, New York, and Pennsylvania. We’re ready to give you trusted advice and help maximize your return.
If you require assistance with or have questions regarding an assignment for the benefit of creditors in New Jersey, please contact Vincent DiMaiolo, Jr. ( [email protected] ), Nicholas Canova ( [email protected] ), or Tammy L. Terrell-Benoza ( [email protected] ) at (973) 538-4700 .
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2022 New Jersey Revised Statutes Title 2A - Administration of Civil and Criminal Justice Section 2A:19-1 - Definitions.
2A:19-1. As used in this chapter:
a. "General assignment" means a transfer or conveyance by a debtor in writing, whereby the debtor transfers or conveys to an assignee, in trust for the benefit of his creditors, all of his property. A "general assignment" includes an assignment by a debtor made under section 2A:20-6 of this title.
b. "Debtor" means any person liable on a debt, including any person in actual confinement or discharged under bond pursuant to chapter 20 of this title.
c. "Court" means the Superior Court.
d. "Creditor" includes any person to whom a debt is due.
e. "Debt" includes any debt, demand or claim.
f. "Assignor" means any debtor who has executed a general assignment.
g. "Assignee" means an assignee under a general assignment, including an assignee appointed under chapter 20 of this title.
L.1951 (1st SS), c.344; amended 1991,c.91,s.70.
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Assignment for the Benefit of the Creditors? One Creditor's Experience With an Archaic State Insolvency Process
Day Pitney Litigation Senior Associate Michael J. Fitzpatrick and Partner Mark Salah Morgan authored an article titled, "Assignment for the Benefit of the Creditors? One Creditor's Experience With an Archaic State Insolvency Process," for the New Jersey Law Journal . The article is an interview with Neil Glasser, Chief Financial Officer for MJH Life Sciences, which is one of the largest privately held healthcare communications companies in the U.S., regarding his experience with an Assignment for the Benefit of Creditors (ABC) and his perspective on the law.
Read the full article here .
Day Pitney Trusts and Estates Partner Tasha Dickinson and Litigation Partner Mark Romance authored the article, "What Partners Can Learn From Associates: Top Five Insights," for the Daily Business Review .
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Assignment for the Benefit of Creditors: An Overview
By Kyriaki Christodoulou
What is an assignment for the benefit of creditors? An assignment for the benefit of creditors (“ABC”) is an alternative to a chapter 7 bankruptcy proceeding. As in a chapter 7, the debtor’s assets are shepherded and liquidated for the benefit of the debtor’s creditors. An ABC is governed by statute and can either be court-supervised or conducted out of court. In New York, an ABC is governed by Article 2 of the Debtor and Creditor Law.
In an ABC proceeding, the debtor is referred to as an assignor, because it makes a transfer of all its assets to an assignee who serves as a trustee. The assignee is charged with placing all the assets in trust in order to liquidate and distribute the proceeds to creditors. While an ABC has many similarities with a chapter 7 liquidation, the two do differ in two important regards:
- an ABC does not afford a debtor an automatic stay from creditor collection; and
- a sale does not provide the purchaser with the right to purchase the assets free and clear of liens – unlike a 363 sale in Bankruptcy.
To commence an ABC, an assignor executes an assignment conveying all its assets to the assignee, who becomes a fiduciary on behalf of the assignor and its creditors. The assignee then collects and liquidates assets by collecting accounts receivable, conducting an auction sale, sometimes to a stalking horse bidder who starts the bidding, or through a going out of business sale.
An assignor also has powers under state law to recover fraudulent pre-ABC transfers of assets and preferential payments made to creditors. In New York, the “look-back period” for recovering these transfers is four years.
When it comes to distribution of the assets collected by the assignee, an ABC proceeding follows an established order of priority, which is set forth in either the state’s unique ABC laws or in the deed of assignment. The assignee tallies the proofs of claim that were filed by the creditors in the proceeding and pays the claims, either in full or on a pro rata basis in accordance with the priority scheme.
After the assignor’s assets have been liquidated and creditors have been paid out, the assignee must prepare an accounting detailing the flows of monies in and out of the estate during the case, which may have to be filed with the court supervising the proceedings. As part of the accounting process, the assignee asks the court to close the estate, which notifies all interested parties that (i) the estate has been fully administered, (ii) that the assignee’s work is complete, (iii) that no further distributions need be made, and (iv) that the assignment is terminated.
An ABC is a useful, cost-effective alternative to a traditional chapter 7 bankruptcy liquidation, and may suitably serve liquidation requirements in some situations. Contact KI Legal’s experienced Bankruptcy and Restructuring team to find out which option is right for you.
*PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME*
This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team .
KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services generally fall under three broad-based practice group areas: Transactions, Litigation and General Counsel. Its extensive client base is primarily made up of real estate developers, managers, owners and operators, lending institutions, restaurant and hospitality groups, construction companies, investment funds, and asset management firms. KI Legal’s unwavering reputation for diligent and thoughtful representation has been established and sustained by its strong team of reputable attorneys and staff. For the latest updates, follow KI Legal on LinkedIn, Facebook, and Instagram. For more information, visit kilegal.com.
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