By: Scott B. Riddle, Esq.   Much of the credit goes to Greg Hays, CPA of Hays Financial Consulting and David Butler, Esq. of Shapiro Fussell, who put together materials on ABC’s for a CLE Seminar held on November 10, 2006.

Assignment for the Benefit of Creditors in Georgia

With the increases in Bankruptcy filings over the past 20+ years, state law alternatives are used far less often.  Many lawyers are not even aware of how some of these alternatives work.  One example is the state law created, and infrequently used, Assignment for the Benefit of Creditors ("ABC"). Both individuals and other entities may make use of an ABC.

Generally, an ABC is "a transfer of all of the debtor’s assets to another person in trust to distribute among the creditors with such delay only as may be incident to liquidation."  The Law Governing Liquidation, Garrard Glenn, Baker Voorhis (1935).  The ABC begins with the formal transfer, by deed, of all of the Assignor’s (debtor’s) assets to the Assignee, a fiduciary. OCGA §18-2-43, 18-2-46. The assignor should also submit books and records and a complete list of creditors. OCGA §§18-2-44, 18-2-45.  Thus, title to the assets actually passes to the Assignee.

The Assignee than files an affidavit attesting to the list of creditors and and books and records (OCGA §18-2-47), notifies the creditors of the ABC, (§18-2-50), collects and liquidates assets (§18-2-53) and examines fraudulent conveyances (§18-2-54).  Presumably, the Assignor can employ counsel or other professionals and can file suit to recover fraudulent conveyances.

According to Hays and Butler, some advantages to an ABC are the absence of court involvement, no US Trustee oversight and expenses, greater flexibility, accelerated process, lower costs, less publicity, and potentially higher yield to creditors.  Potential disadvantages include limited creditor involvement, debtor gets to choose fiduciary, lack of court or US Trustee oversight, no automatic stay, no discovery, absence of Bankruptcy authority to sue for preference, reject contracts, etc., and the more restricted definition of the debtor’s "estate."  Additionally, a trustee in Bankruptcy enjoys immunity and protection for actions taken within his scope of duties (but not for actions taken outside of the scope), but the Assignee in an ABC may not enjoy this immunity.

Importantly, if the ABC is not working to the satisfaction of creditors, one or more may file an involuntary Bankruptcy petition against the Debtor pursuant to 11 USC §303.  Moreover, if the Debtor is unhappy with the process, or perhaps the Assignee turns out to be less "friendly" than expected, he can also file a voluntary petition. (click here for authority for debtor to file after receiver is appointed). 

This is a very basic summary of the Assignment for the Benefit of Creditors, but it is still alive and well in Georgia and may be a viable alternative to Bankruptcy in many circumstances.