What is an Assignment for the Benefit of Creditors (ABC)?

For over 15 years at CMBG (and a legal career spanning over 30 years), I have sat across the table from scores of founders, CEOs, and boards at the hardest moment of their professional lives: the moment they realize the company is not going to make it. The funding round fell through. The acquirer walked. The runway is measured in weeks, not quarters. And now the question is no longer how do we save this business, but how do we end it responsibly, at the same time reducing personal exposure, avoiding an unnecessary public spectacle, and returning as much value as possible to the people who are owed money.

For most people, the only ending they know is the one in the headlines: bankruptcy. But for many companies, particularly venture-backed startups and privately held middle-market businesses with a California nexus, the better ending may be a route most founders have never heard of until their lawyer or lead investor mentions it: the Assignment for the Benefit of Creditors, or ABC.

At CMBG Advisors, ABCs are our flagship practice. We have been involved in ABC work for more than 15 years and involved with more than 150 distressed-company matters, including advisory engagements, sale processes, wind-downs, and consultations, spanning more than $2 billion in assets. Those matters have included biotech, AI software, robotics, consumer products, insurance, food manufacturing, medical research and development, and nearly every other sector the US produces.

An Assignment for the Benefit of Creditors is a process in which an insolvent company voluntarily transfers (“assigns”) all of its transferable, nonexempt assets to an independent third party, called the assignee, who holds and administers those assets as a fiduciary for the company’s creditors. The assignee then liquidates the assets, converts them to cash (or other forms of consideration), evaluates creditor claims, and distributes the proceeds according to legal priorities.

Think of it as a state-law alternative to a Chapter 7 bankruptcy and liquidation. In a Chapter 7 case, a bankruptcy trustee liquidates the company under federal court supervision, on the bankruptcy system’s timeline, with filings on a public docket. In a California ABC, the company selects a professional assignee, the transfer occurs by contract rather than a bankruptcy petition, and the ordinary administration proceeds outside of the court system. No assigned judge. No bankruptcy docket. No need to wait for routine sale hearings.

ABCs are not a loophole or a novelty. The assignment for the benefit of creditors is one of the oldest debtor-remedy devices in Anglo-American law, with common-law roots that predate the U.S. Bankruptcy Code by centuries. Today, ABCs are governed by state law, and the flavor varies meaningfully by state.

California follows the common-law model, supplemented by statute. No court filing or judicial approval is required to commence or administer an ABC under California law, although courts can become involved in the unlikely event a dispute requires judicial resolution. The key statutory provisions include California Code of Civil Procedure Section 493.010, which defines a general assignment, and Sections 1800 through 1802, which address certain assignee recovery powers and the notice and claims process. The result is a fast, private, flexible process administered by the assignee rather than a judge.

Delaware materially changed its law in June 2026. Senate Bill 267 enacted the Uniform Assignment for Benefit of Creditors Act as Chapter 73A of Title 10, replacing Delaware’s prior framework with a modern statute. The new law requires the assignee to file a petition with the Delaware Court of Chancery within 14 days, but routine administration is largely assignee-driven, and the assignee may seek court approval of sales, bidding procedures, financing, or other contested or significant matters. Florida and several other states continue to use more court-supervised models. These processes may still be faster and cheaper than bankruptcy, but they trade away some of the speed and privacy that distinguish a California ABC.

Because so many venture-backed companies are Delaware corporations operating in or with ties to California, a frequent early question is which state’s process applies. The answer is fact-specific and should be addressed by counsel. A Delaware-incorporated company with a meaningful California nexus can often use a California ABC, while Delaware’s new statute now provides another viable path for entities organized under Delaware law. Corporate approvals must satisfy the company’s governing law and organizational documents regardless of where the ABC is administered.

The modern resurgence of the ABC has been driven largely by the venture ecosystem. A failed startup’s most valuable assets (intellectual property, customer relationships, and an engineering team) can evaporate quickly and may not justify the cost and delay of a bankruptcy case. Sophisticated investors and startup counsel therefore increasingly consider an ABC early when an orderly wind-down or rapid asset sale becomes necessary.

The assignor is the insolvent company. Its role is front-loaded: the board and shareholders authorize the assignment where required, management assembles the information the assignee needs (asset lists, creditor matrix, contracts, books and records), and the company executes the General Assignment. After signing, the company’s operational role largely ends. The corporate entity ordinarily continues to exist as an assetless shell unless a separate dissolution is later requested and appropriate; CMBG does not routinely dissolve the shell because it is often unnecessary.

The assignee is the independent professional (at CMBG, a special-purpose entity we form for each matter) that receives the assigned assets and administers the estate. The assignee secures the assets, runs the sale process, notifies creditors, reviews and reconciles claims, evaluates estate causes of action where appropriate, handles estate tax and reporting matters as applicable, and makes distributions as available.

Creditors are the beneficiaries of the process. Secured creditors retain their liens on the assigned assets (a general assignment does not strip a valid security interest), so their consent or payoff arrangement is a critical early workstream. Unsecured creditors receive notice of the assignment, file claims with the assignee by a stated deadline, and share in potential distributions according to priority. Priority claimants—most importantly employees with unpaid wage claims, and certain tax authorities—are paid ahead of general unsecured creditors with available funds.

Buyers purchase assets from the assignee. Sometimes the buyer is identified before the assignment is signed (more on “pre-packaged” ABCs below); sometimes the assignee runs a marketed sale process after taking possession. Buyers transact with an independent fiduciary conveying the assigned assets through a recognized process rather than directly with a failing company.

Counsel and other professionals surround the process. The company should have its own insolvency counsel (the assignee is not the company’s lawyer and cannot be). The assignee typically engages estate counsel and, depending on the assets, appraisers, auctioneers, or IP brokers.

Every matter has its own texture, but after involvement in more than 150 distressed-company matters, the arc is remarkably consistent. Here is the process from first call to final distribution.

If your company is beyond saving, the realistic choice is usually between an ABC and a Chapter 7 liquidation. They reach the same destination (assets sold, proceeds distributed, original business ended), but the journey is profoundly different.

Who runs the process. In a Chapter 7 bankruptcy, the U.S. Trustee’s office appoints an interim trustee from a panel, subject to the Bankruptcy Code’s procedures. The company does not select that person, and the trustee may or may not have familiarity with the industry, asset class, or likely buyers. In an ABC, the company selects the assignee before signing. That selection is one of the board’s last and most important value-preservation decisions.

Speed. A bankruptcy sale generally requires formal notice and an opportunity for court review, which typically results in a dragged-out six-month (or longer) sale process. An ABC can be planned before signing, transfers control to a prepared fiduciary on day one, and can close a pre-packaged sale immediately or usually within 30 days for a non-packaged sale. For technology companies, where the real assets may be the team, customer continuity, and codebase, that difference is often the recovery.

Cost. Chapter 7 cases include statutory trustee compensation and may require trustee’s counsel, notices, hearings, and other court-process expenses. A well-run ABC is often leaner: a disclosed assignee fee, estate counsel used where needed, and no routine courtroom overhead in California. The comparison is fact-specific, but lower administrative burn can leave more for creditors.

Publicity. A bankruptcy filing is a public event with a searchable federal docket, and it tends to generate press with the word “bankruptcy” in the headline. An ABC has no public docket. Creditors, employees, and counterparties are formally notified—this is not secrecy from the people entitled to know—but the process is materially quieter.

Court powers. Chapter 7 has genuine advantages an honest advisor must acknowledge. Filing a petition triggers the automatic stay under Section 362, subject to statutory exceptions and relief from stay. A trustee may sell property free and clear of interests when one of the conditions in Section 363(f) is satisfied, and may assume and assign qualifying leases and contracts under Section 365. A California ABC has no comparable compulsory federal powers. If the situation genuinely requires a stay, a contested free-and-clear order, or forced assumption and assignment of a critical lease, bankruptcy may be the better tool—and that is exactly what pre-assignment diligence, or our Bankruptcy Support work, is designed to determine.

A Chapter 11 bankruptcy is a reorganization and going-concern sale tool: it lets a business continue operating while it restructures debt or sells itself under court protection. For large companies with complex capital structures, operations worth preserving, and the budget for the professional fees the process consumes, it can be the right answer. A traditional Chapter 11 can become a seven-figure exercise and, in a contested or complex middle-market case, may reach or exceed $2 million to $3 million. For many middle-market companies, that cost is simply not practical (although Subchapter V can reduce cost and complexity for eligible smaller businesses).

An ABC does not reorganize the assignor itself: the old company generally does not emerge with its debts restructured. But that does not mean the underlying business must disappear. The assignee can sell the assets, brand, customer relationships, intellectual property, and operating platform to an independent buyer or a properly formed new company, allowing the business to continue under new ownership while the old liabilities remain with the assignor shell. Any insider or sponsor-led transaction must satisfy the assignee’s fiduciary duties and a defensible sale process.

Where the lines blur is the going-concern sale and the out-of-court workout. A well-executed pre-packaged ABC can preserve much of what a Chapter 11 Section 363 sale preserves—the assets, brand, customers, and team move to a buyer intact—at a fraction of the cost and time, provided secured creditors cooperate and no compulsory court powers are needed. The credible availability of an ABC can also provide leverage and a practical backstop in negotiations for an out-of-court restructuring: stakeholders may support a consensual deal when they understand the liquidation alternative. For venture-backed companies with relatively simple capital structures, cooperation is often achievable. For companies with hostile lenders, sprawling litigation, or union and pension complexity, it often is not.

The situations where an ABC clearly outperforms the alternatives share a recognizable profile.

The business cannot continue, but the assets have real value to someone else. Intellectual property, code, brands, customer relationships, specialized equipment, regulatory assets. The ABC’s speed preserves that value; a slow process destroys it.

A buyer exists or can be found quickly. The pre-packaged ABC is at its best when a strategic acquirer wants the technology and the team but does not want to buy a company carrying unknown liabilities. Buying from an assignee through an established fiduciary process gives the acquirer a defensible, arm’s-length transaction.

Secured creditors are cooperative. When the numbers show that a fast, consensual sale will preserve more collateral value than a slower liquidation, a lender often has a strong reason to cooperate. Venture lenders in particular are familiar with the process. Their liens remain in place unless they consent to a different treatment or are paid, so those discussions belong at the beginning, not the end.

The board wants a defensible, orderly end. Directors of a distressed company face real risk in a chaotic collapse: missed payroll, inconsistent payments, assets walking out the door, or decisions made without adequate information. Transferring the assigned estate to an independent fiduciary through a recognized process can create a clear, well-documented record that the board acted deliberately to preserve value and treat creditors fairly.

Discretion matters. Founders with future ventures, investors with reputations, and businesses whose customers would flee at a bankruptcy headline all benefit from the quieter path.

Speed and cost matter. They almost always do. Every month of process and every dollar of administrative expense comes out of creditors’ recovery, which is why a lean process like an ABC fits situations where a high-dollar bankruptcy budget is not feasible.

Candor about the limits of the process is part of the job. An ABC is likely wrong when:

The business should be saved. If the existing company has a viable path through new capital, a consensual workout, or a going-concern sale from strength, liquidation of any kind may be the wrong first conversation—which is where restructuring advisory belongs before a wind-down conversation starts. But when the old entity cannot be saved, an ABC can still preserve the operating assets or business platform through a sale to an independent buyer or a new company, including a properly tested insider-sponsored buyer.

You need the automatic stay. If aggressive litigation or foreclosure is bearing down and only a federal injunction will stop it, bankruptcy provides that; an ABC does not.

Key value is trapped in leases or contracts that counterparties will not assign. An assignee cannot force a landlord or contract counterparty to accept an assignment the way a bankruptcy trustee may be able to under the Bankruptcy Code. California Civil Code Section 1954.05 does, however, permit an assignee to occupy leased business premises for up to 90 days after the assignment if the current monthly rent is paid on time. In practice, we are often able to negotiate free or reduced-cost access while we liquidate the premises and return them orderly. Landlords almost always cooperate because that arrangement can avoid the time and expense of eviction or lockout. The 90-day occupancy right is valuable, but it does not make the lease assignable or force a landlord to accept a buyer.

A secured creditor objects and will not deal. An ABC lacks bankruptcy’s compulsory Section 363(f) sale authority and cannot simply override a hostile lienholder. Sometimes a negotiated solution succeeds anyway; sometimes the file belongs in bankruptcy court.

The estate is administratively insolvent with nothing meaningful to sell or collect. If there are truly no assets or claims worth administering, a formal fiduciary process may add cost without producing value.

Individuals need a discharge. An ABC winds down a company; it does not discharge anyone’s debts. Personal guarantees survive the ABC untouched, so founders who guaranteed leases, loans, or credit cards need a separate strategy and should raise that exposure with counsel on day one.

Understand the fiduciary-duty framework. It is too simple to say that directors’ duties automatically “shift to creditors” whenever a company enters a vague zone of insolvency. Directors continue to owe their fiduciary duties to the corporation. As actual insolvency approaches or occurs, however, creditor-protection principles, avoidance law, and the rules governing diversion or dissipation of assets become increasingly important, and the governing law may permit creditors to enforce certain duties derivatively. Continuing to burn cash without a rational value-preservation purpose, repaying insiders selectively, or taking undue risks with an insolvent estate can create exposure. The safest course is early advice, a documented process, and decisions grounded in the corporation’s best available outcome.

Watch pre-assignment transfers. Payments to insiders, transfers to affiliates, and last-minute asset sales in the months before a wind-down may raise eyebrows. The practical rule is not that every payment must stop; it is that management should not improvise. Obtain counsel, avoid undocumented insider preferences or off-market transfers, and disclose everything to the assignee.

Deal with employees correctly. Final-pay rules in California (and other states) are strict and carry waiting-time penalties (Cal. Lab. Code §§ 201–203), WARN notice obligations may apply well before the assignment, and unpaid wage claims carry priority in the distribution. Employee treatment is also the piece of a wind-down that most shapes how the story is told afterward. Plan it early, not last.

Keep D&O insurance in place. The policy (and a tail extension) should be evaluated before the assignment, while the company can still buy it. This is standard practice.

The company still has obligations after signing. These may include final tax and corporate filings, records retention, and cooperation with the assignee. Dissolution is not automatic and not routinely necessary; if the company requests it, the steps should be coordinated with company counsel. CMBG can retain estate records for up to seven years as part of the post-closing administration.

If you are reading this as a creditor who just received a notice of assignment, here is the honest picture: you will receive formal written notice identifying the assignee and a deadline to file your claim. File your claim on time with backup documentation. The assignee will liquidate the assets, reconcile claims, and distribute proceeds by priority; unsecured creditors share pro rata in what remains after administrative costs, secured recoveries, and priority claims.

Recoveries vary with the quality of the assets, liens, claims, and speed of execution. A well-run ABC can preserve value and consume less of the estate than a slower process, but it cannot manufacture value that is not there. You are entitled to ask the assignee questions, and a professional assignee should answer them; transparency with creditors is not a courtesy in this business, it is the currency.

The board’s choice of assignee is the single highest-leverage decision in the process. What to look for:

Track record, in volume and in kind. How many assignments has the firm actually administered, and in what industries? Experience in the relevant industry is what can set a certain assignee apart.

Independence and reputation with creditors. The process only works if creditors, buyers, and (if it ever comes to it) judges trust the fiduciary. An assignee known for cutting corners taints every transaction it touches.

Buyer networks and sale execution. Recoveries come from sales. An assignee should be able to tell you, before engagement, how they would market your specific assets and who the likely buyers are.

Fee transparency. Fees should be disclosed, structured sensibly for the estate, and agreed upfront.

Operational capability. Securing facilities, preserving data, managing landlords, handling payroll transitions, filing estate tax returns: the unglamorous execution is where estates leak value.

At CMBG, our answer to those questions is more than 15 years of ABC work, involvement in more than 150 distressed-company matters, experience with more than $2 billion in assets, and a cross-industry practice built around sale execution and fiduciary administration. But whoever you choose, ask the questions.

The questions below come up in nearly every first conversation.

An Assignment for the Benefit of Creditors is a professional tool for winding down a company responsibly: often faster, quieter, and less expensive than bankruptcy, and frequently better able to preserve the value of assets that deteriorate quickly. It can also preserve an underlying business through a properly marketed sale, including a sale to a new company, while transferring the old estate to an independent fiduciary. It is not right for every situation, and the judgment about whether it is right for yours deserves the same rigor as any other board-level decision.

If your company is running out of road, the most valuable thing you can do is start the conversation early, while there are still options to choose among and value left to protect. Every consultation we take is confidential, and the first thing we will try to answer is whether an ABC is even the right answer. You can book a consultation with our team at any time.

James Baer is the founder and president of CMBG Advisors, Inc., a restructuring and fiduciary advisory firm. A former attorney, he has practiced law and advised distressed businesses for more than 30 years. CMBG has been involved in ABC work for more than 15 years, including advisory engagements, sale processes, wind-downs, and consultations, involving administration of more than $2 billion in assets across technology, consumer, media, industrial, and other sectors.