Delaware's New ABC Law: What It Means for Distressed Businesses

An assignment for the benefit of creditors (ABC) is a voluntary, company-initiated liquidation governed by state law. A financially distressed business, known as the assignor, transfers its assignable assets to an independent fiduciary, known as the assignee, who then sells those assets and distributes the proceeds to creditors according to a defined priority scheme.

For the right company, an ABC is faster, cheaper, and more flexible than a federal bankruptcy case or a creditor-initiated receivership. It lets a business wind down with dignity, gets value into creditors' hands more quickly, and avoids the cost and public spectacle of a Chapter 11. The assignee, not the company's board or management, runs the process tethered by its fiduciary duties, which is part of what gives creditors confidence in the outcome.

The catch, historically, has been that ABC law varies dramatically from state to state. Delaware's century-and-a-half-old statute was widely viewed as cumbersome and unpredictable. That is exactly what this new law fixes.

Delaware just modernized one of the oldest tools in restructuring, and it is a development worth the attention of any company, lender, or investor navigating financial distress. On June 11, 2026, Delaware Governor Matt Meyer signed Senate Bill 267 into law, adopting the Uniform Assignment for Benefit of Creditors Act, known here as the Delaware ABC Act. The new law repeals a statute that had been on the books since 1875 and brings Delaware in line with a growing national standard, joining Alabama, Arizona, Iowa, Nebraska, and Utah.

The Uniform Law Commission approved the model Uniform ABC Act in October 2025. The goal of the uniform framework is to replace inconsistent common-law and outdated statutory procedures with a streamlined, predictable process, while preserving flexibility and allowing, but not requiring, court involvement.

For Delaware, the upgrade is significant. The old regime was sometimes described as the Wild West of restructuring. The new act largely removes routine court supervision while keeping Delaware's highly regarded courts available for disputed matters, sale approvals, and other points where judicial backing adds value. For companies and their stakeholders, that translates into more certainty about how a wind-down will unfold and what creditors can expect to recover.

Many of the businesses we work with are most familiar with the California ABC, which has long been a go-to restructuring tool on the West Coast. It is worth understanding how Delaware's new framework compares, because the differences affect timing, process, and strategy.

Court involvement is the biggest contrast. A California ABC is entirely out-of-court: it is a contractual device requiring no public court filing to commence or supervise the assignment. Delaware now requires the assignee to file a petition with the Court of Chancery within 14 days of entering into the assignment agreement. Delaware's new process is still far lighter than bankruptcy, while taking a major step toward a more privately run process.

California ABCs run on common law supplemented by specific statutory provisions, notably the California Code of Civil Procedure. Delaware now operates under a comprehensive uniform statute, which brings more predictability and a more defined roadmap than a largely common-law approach.

California generally uses a 150-to-180-day claim filing window. Delaware sets a floor of 90 days for the claims bar date, with the Court of Chancery shaping the specifics.

In California, the assignee typically sells assets as a private transaction with no court approval, often closing within days. Delaware's new act gives the Court of Chancery the ability to approve auction or sale procedures upon request of the assignee, which can add a layer of process, but also a layer of protection and comfort for buyers.

Several features of the act are worth knowing.

The assignee cannot be a creditor, insider, or affiliate of the assignor, and cannot hold a material financial interest in the outcome beyond agreed fees. This independence is foundational: it is what gives secured creditors, customers, and trade vendors confidence to cooperate. It is also precisely the role CMBG plays.

The assignor must turn over assets and provide verified lists of all assets, including intellectual property and insurance, employees, and creditors, and designate a representative to assist. The assignee owes fiduciary duties of loyalty, good faith, and reasonable care, all aimed at maximizing creditor recoveries.

Unless the assignment agreement limits them, the assignee can operate the business, incur debt, hire professionals, sell encumbered or unencumbered assets, settle claims, and pursue or defend litigation, including creditor-style avoidance actions.

Proceeds flow through a defined waterfall: secured creditors from their collateral, administrative costs, federal priority claims, employee wage and commission claims earned within 180 days subject to a cap, priority unsecured claims, general unsecured claims pro rata, and finally late-filed claims and any surplus.

In our experience, an ABC is often the right tool for small to midmarket companies that:

• Lack the liquidity to fund a Chapter 11 case.
• Do not need the broad protections of bankruptcy's automatic stay.
• Want a faster, more discreet wind-down than a public bankruptcy.
• Are not facing mass tort liability or highly contentious capital-structure disputes that demand bankruptcy-specific tools like cramdown.

The new Delaware framework's defined duties, fiduciary independence, and clear distribution rules should reduce the black box perception that has sometimes attached to out-of-court liquidations, making lenders, customers, and vendors more willing to engage.

An ABC is not a substitute for bankruptcy in every situation. A few limitations matter.

• It provides no automatic stay, so it is poorly suited to companies facing immediate, broad-based litigation or mass tort exposure.
• Secured creditor cooperation, especially on cash collateral and consensual sales, usually remains essential.

Knowing when an ABC fits, and when it does not, is exactly the judgment call we help clients work through.

The Delaware ABC Act is a meaningful upgrade. It makes one of restructuring's most useful tools more predictable and accessible, and because Delaware is the state of incorporation for such a large share of U.S. businesses, it pushes the entire country closer to a uniform standard. For a liquidity-constrained company weighing its options, it is a path worth understanding before distress turns into crisis.

If you are a business owner, lender, or investor wondering whether an ABC in Delaware, California, or elsewhere is the right move, that is a conversation we have every day. CMBG Advisors brings the clarity, fiduciary independence, and operational experience to guide these situations from uncertainty to resolution.