By: Donald L Swanson

I’m serving on a Drafting Committee of the Uniform Law Commission for a uniform law on assignment for benefit of creditors (“ABC”).  A draft of such a uniform law is coming together, with lots of input from many people and organizations. But we are always looking for more input. So, if you’d like to participate in the drafting process, let me know.

Assignments for benefit of creditors (“ABCs”) and receiverships have been around under the common law, as separate and independent . . . but complementary . . . procedures, for a very long time.

They’ve both been around for centuries, no less, dating back at least to the medieval days of Merry Olde England — and probably even beyond that.

Separate & Distinct

Each process (ABC and receivership) serves a separate and distinct purpose and function:

• ABC is a voluntary process whereby a debtor agrees to have its assets liquidated, without court supervision, by an independent third person chosen by the debtor, often with creditor support, in an effort to maximize the value of those assets — for the benefit of all debtor’s creditors; whereas,
• Receivership is an involuntary process whereby a creditor wrests control of assets away from its debtors, by compulsory court action, and places those assets in the hands of court-appointed receiver for liquidation — for the primary benefit of the creditor who files each receivership.

A Development with Momentum?

In more recent times (the last couple decades or so), a development has been gaining momentum among the legislatures of our various United States: i.e., to blend, by statute, ABCs into receiverships.

The result is to make ABCs and receiverships one-and-the-same (i.e., indistinguishable and serving the same purpose and function).

The only difference is that a creditor initiates the one (a receivership), while a debtor initiates the other (an ABC). Otherwise, the two processes are identical: they no longer serve a separate or distinct or complementary purpose and function.

Unfortunate Result

The unfortunate result for a state that blends ABCs into receiverships by statute is this:

• debtors, who are looking for a mechanism to liquidate their assets in a manner that is efficient and credible to creditors, won’t use such a statutory process;
• so, ABCs largely go unused in states that enact such blending statutes; and
• such blending statutes become, as a practical matter, a means to kill ABCs as a useful process in that state.

Each state enacting such a blending statute does so under the guise of improving ABCs in that state but, in reality, is doing exactly the opposite, either wittingly or otherwise.

Contrasts & Comparisons

What follows are some contrasting and comparing observations between ABCs and receiverships under the common law.

—ABC Contrasts with Receiverships

Here are some contrasts:

• a receivership proceeds under heavy court supervision, while an ABC does not;
• a receivership requires an expensive bond, while an ABC does not;
• a receivership liquidation is delayed by lengthy court processes, while an ABC liquidation is not; and
• a receivership requires extensive and expensive lawyer involvement, while an ABC does not.

—ABC Comparisons with Receiverships

Here are some comparisons:

• a receiver can sell debtor’s assets—an assignee can too;
• a receiver can pursue and collect on debtor’s claims against third parties—an assignee can too;
• a receiver can settle or disallow disputed claims of creditors—an assignee can too; and
• a receiver can distribute sale proceeds to debtor’s creditors—an assignee can too.

So, why would a debtor, or its creditors, prefer to use an expensive and time-consuming receivership, if a comparatively quick and inexpensive ABC is available? The answer is this: in the vast majority of circumstances, they wouldn’t.

Conclusion

ABCs are separate and distinct, and substantially different, from receiverships. Yet, both have been complementary processes for centuries.

The two should not be confused or combined or blended by state statutes!

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