Assignment for the Benefit of Creditors (ABC): How It Works

What an assignment for the benefit of creditors is

The Uniform Law Commission's prefatory note describes an assignment for the benefit of creditors as a voluntary, debtor-started, state-law alternative to federal bankruptcy, state receiverships and voluntary workouts. It is a liquidation: an assignor in financial distress, usually a company, voluntarily assigns all of its assets to an assignee. The assignee is a fiduciary who liquidates the assets and distributes the proceeds to the assignor's creditors.

The same note says an ABC is often seen as a cheaper and more flexible option than bankruptcy. Because the debtor starts it, it differs from a receivership, which creditors start.

ABC law differs from state to state

There is no single national ABC procedure. According to the Uniform Law Commission:

• In some states, such as Florida, New York and New Jersey, assignments are governed by statute.
• In others, including California and Illinois, they are governed mostly or completely by common law.
• Several states have little or no law on assignments, and in some the law is decades old.
• In some states, such as Florida, a court supervises the assignment. In others, there is little or no court supervision.

Florida's statute

Florida's general assignments law is Chapter 727, Florida Statutes. Its sections cover commencing the proceeding, duties of the assignor and the assignee, the power of the court, notice, proof of claim, objections to claims, priority of claims, and the assignee's final report and discharge.

The 2025 Uniform Act

In July 2025 the Uniform Law Commission approved the Uniform Assignment for Benefit of Creditors Act at its 134th annual meeting. A uniform act is a model: it becomes law in a state only if that state's legislature enacts it, so check your own state before relying on it. The act aims to give states a clear, streamlined process for starting and completing an assignment, distributing to creditors, and handling claims, liability and interstate assets.

How an ABC works under the Uniform Act

Choosing the assignee

Under Section 4 of the act, the assignee must be independent. Among other limits, the assignee cannot be a creditor, affiliate or insider of the assignor; cannot hold a claim against the assignment estate other than for fees and expenses under the agreement; cannot have a material financial interest in the outcome; and cannot hold an equity interest in the assignor other than a noncontrolling interest in a public company. Having done work for the company before does not on its own disqualify someone.

The assignment agreement

The agreement must be a signed record that states the names and addresses of the assignor and assignee, transfers all of the assignor's assets, and describes them in enough detail to identify them.

Notice and proofs of claim

The assignee notifies creditors and gives reasonable instructions for submitting a proof of claim, which the act defines as a record a creditor submits to the assignee as evidence of its claim. A compliant proof of claim is prima facie evidence of the claim. The act leaves the deadline to each enacting state.

Selling assets and paying creditors

The assignee sells the assets and distributes the proceeds under the act's distribution scheme. The comments note that the assignee must notify the IRS of the fiduciary relationship, currently on IRS Form 56, filed where the assignor filed its tax returns.

ABC versus bankruptcy and dissolution

For a solvent company, a normal dissolution is simpler. An ABC fits when debts exceed assets but the assets can still be sold, often to a buyer who wants them quickly and with an independent fiduciary running the sale.

Company data in an assignment for the benefit of creditors

Because the company assigns all of its assets, its data goes to the assignee too: customer lists, code, support tickets, email archives and internal chat history. Data can be one of the few assets left in a failed software company, and buyers now pay for it. MIT Technology Review reported in October 2026 that AI labs are buying data from defunct startups.

The assignee is a fiduciary for creditors, so data sales have to respect privacy laws, customer contracts and any promises in the company's privacy policy. Sale proceeds go into the estate and to creditors under the distribution rules, not to the founders.

Common questions