Form 21 Assignment For The General Benefit Of Creditors Financial Group

(1)(a) An irrevocable assignment and schedules shall be made in writing, containing the name and address of the assignor and assignee and providing for an equal distribution of the estate according to the priorities set forth in s. 727.114.

(b) The assignment shall be in substantially the following form:

ASSIGNMENT

ASSIGNMENT, made this   day of  ,   (year)  , between  , with a principal place of business at  , hereinafter “assignor,” and  , whose address is  , hereinafter “assignee.”

WHEREAS, the assignor has been engaged in the business of   ;

WHEREAS, the assignor is indebted to creditors, as set forth in Schedule A annexed hereto, is unable to pay its debts as they become due, and is desirous of providing for the payment of its debts, so far as it is possible by an assignment of all of its assets for that purpose.

NOW, THEREFORE, the assignor, in consideration of the assignee’s acceptance of this assignment, and for other good and valuable consideration, hereby grants, assigns, conveys, transfers, and sets over, unto the assignee, her or his successors and assigns, all of its assets, except such assets as are exempt by law from levy and sale under an execution, including, but not limited to, all real property, fixtures, goods, stock, inventory, equipment, furniture, furnishings, accounts receivable, bank deposits, cash, promissory notes, cash value and proceeds of insurance policies, claims and demands belonging to the assignor, and all books, records, and electronic data pertaining to all such assets, wherever such assets may be located, hereinafter the “estate,” as which assets are, to the best knowledge and belief of the assignor, set forth on Schedule B annexed hereto.

The assignee shall take possession of, and protect and preserve, all such assets and administer the estate in accordance with the provisions of chapter 727, Florida Statutes, and shall liquidate the assets of the estate with reasonable dispatch and convert the estate into money, collect all claims and demands hereby assigned as may be collectible, and pay and discharge all reasonable expenses, costs, and disbursements in connection with the execution and administration of this assignment from the proceeds of such liquidations and collections.

The assignee shall then pay and discharge in full, to the extent that funds are available in the estate after payment of administrative expenses, costs, and disbursements, all of the debts and liabilities now due from the assignor, including interest on such debts and liabilities. If funds of the estate shall not be sufficient to pay such debts and liabilities in full, then the assignee shall pay from funds of the estate such debts and liabilities, on a pro rata basis and in proportion to their priority as set forth in s. 727.114, Florida Statutes.

If all debts and liabilities are paid in full, any funds of the estate remaining shall be returned to the assignor.

To accomplish the purposes of this assignment, the assignor hereby appoints the assignee its true and lawful attorney, irrevocable, with full power and authority to do all acts and things which may be necessary to execute the assignment hereby created; to demand and recover from all persons all assets of the estate; to sue for the recovery of such assets; to execute, acknowledge, and deliver all necessary deeds, instruments, and conveyances; and to appoint one or more attorneys under her or him to assist the assignee in carrying out her or his duties hereunder.

The assignor hereby authorizes the assignee to sign the name of the assignor to any check, draft, promissory note, or other instrument in writing which is payable to the order of the assignor, or to sign the name of the assignor to any instrument in writing, whenever it shall be necessary to do so, to carry out the purpose of this assignment.

The assignee hereby accepts the trust created by the assignment, and agrees with the assignor that the assignee will faithfully and without delay carry out her or his duties under the assignment.

    
Assignor
    
Assignee

STATE OF FLORIDA

COUNTY OF   

The foregoing assignment was acknowledged before me this   day of  ,   (year)  , by  , as assignor, and by  , as assignee, for the purposes therein expressed.

  (Signature of Notary Public - State of Florida)  

  (Print, Type, or Stamp Commissioned Name of Notary Public)  

Personally Known   OR Produced Identification  

Type of Identification Produced   

(c) The assignment shall have annexed thereto as Schedule A a true list of all of the assignor’s known creditors, their mailing addresses, the amount and nature of their claims, and whether their claims are disputed; and as Schedule B a true list of all assets of the estate, including the estimated liquidation value of the assets, their location, and, if real property, a legal description thereof, as of the date of the assignment.

(d) The schedules shall be in substantially the following forms:

SCHEDULE A—CREDITOR LIST

1. List all secured creditors showing:
NameAddressAmountCollateralWhether or not disputed
2. List all wages owed showing:
NameAddressAmount Whether or not disputed
3. Consumer deposits:
NameAddressAmount Whether or not disputed
4. List all taxes owed showing:
NameAddressAmount Whether or not disputed
5. List all unsecured claims showing:
NameAddressAmount Whether or not disputed
6. List all owners or shareholders showing:
NameAddress Percent of Ownership
7. List all pending litigation and opposing counsel of record:
StylePartiesOpposing Counsel of Record

SCHEDULE B—LIST OF ASSETS

List each category of assets and for each give approximate value obtainable for the asset on the date of assignment, and address where asset is located.

I. Nonexempt Property

Description and
Location
Liquidation Value
at Date of Assignment

1. Legal description and street address of real estate, including leasehold interests:

2. Fixtures:

3. Cash and bank accounts:

4. Inventory:

5. Accounts receivable:

6. Equipment:

7. Prepaid expenses, including deposits, insurance, rents, and utilities:

8. Other, including loans to third parties, claims, and choses in action:

II. Exempt Property

Description and
Location
Liquidation Value
at Date of Assignment
(e) The assignment and schedules shall be duly verified upon oath by the assignor, and accepted by the assignee under oath in substantially the following form:

VERIFICATION OF ASSIGNMENT
AND SCHEDULES BY ASSIGNOR

The undersigned,   (name)  ,   (position with assignor)   of   (assignor)  , hereby verifies the Assignment of all of its rights, title, and interest in and to all of its assets, as indicated on the attached Schedules to that Assignment as filed with this Court on   (date)  , and further verifies each of the facts set forth in the Schedules annexed to the Assignment to the best of my knowledge and belief.

      

Name, Position with Assignor

STATE OF FLORIDA

COUNTY OF   

Sworn to and subscribed before me this   day of  ,   (year)  .

  (Signature of Notary Public - State of Florida)  

  (Print, Type, or Stamp Commissioned Name of Notary Public)  

Personally Known   OR Produced Identification  

Type of Identification Produced   

ACCEPTANCE BY ASSIGNEE

The undersigned,   (assignee)  , the Assignee herein, duly acknowledges that the Assignee accepts delivery of the assignment and that he or she will duly perform the duties imposed upon the Assignee pursuant to chapter 727, Florida Statutes.

     

Assignee

STATE OF FLORIDA

COUNTY OF   

Sworn to and subscribed before me this   day of  ,   (year)  .

  (Signature of Notary Public - State of Florida)  

  (Print, Type, or Stamp Commissioned Name of Notary Public)  

Personally Known   OR Produced Identification  

Type of Identification Produced   

When faced with the deteriorating financial condition of a customer or client, there is one simple rule of thumb that every creditor should follow: always participate in the insolvency process. Creditors that stay on the sidelines are doomed to the results others fail to attain.

I like to play blackjack in Vegas (one of my last remaining vices). Believe it or not, insolvency proceedings and that game of cards are alarmingly similar. First, if you don’t have a seat at the table, you will have no chance at getting a distribution. Second, in order to play the game, your seat at the table will cost you money on the front end. Third, if you don’t know the rules, you are destined to lose. Finally, if you don’t know your odds, you will end up losing far more than you win.

Clients or customers on the brink of insolvency may introduce you to the phrase “assignment for the benefit of creditors” (ABC). If so, my advice is to take a lesson from blackjack and get your seat at the table. At the very least, explore the insolvency process with them. If it makes sense, you should also participate actively—even if it costs you a little money. To do so, you will first need a working knowledge of the process.

What Is an Assignment for the Benefit of Creditors?

An ABC is a voluntary, out-of-court transfer of a debtor’s property (of every kind and nature) to a third-party trustee (more commonly known as an assignee). This type of insolvency proceeding is designed to provide a mechanism for liquidating a company’s assets in an orderly fashion. In some cases, a buyer will take over the company through an operating assignment, which may allow for the continuation of business for a period of time.

Because there is no statutory scheme in place for ABCs in Illinois, the process is strictly based on common law. Generally, assignments may not be made in the face of a validly issued and served citation to discover assets, which is a post-judgment recovery process that prohibits the voluntary transfer of property to an assignee. While an ABC does not require approval by the creditors, it helps if they are at least involved in the process. Still better is when one of the primary creditors has a hand in drafting the trust document, which establishes the ABC and lays out the rules of the assignment. Although most assignees have their own standard forms, many are willing to work with creditors to customize several aspects of those documents. As a creditor, your involvement in drafting the trust document could mean the difference between having a budget in place for the assignee or allowing the assignee and legal counsel to operate the business (or wind it down) without any budgetary constraints whatsoever.

Shieldwipe: A Case Study

In order to better understand when an ABC is useful, consider the hypothetical example of Shieldwipe, a fictional manufacturer of windshield wipers. Let’s say that Shieldwipe, whose primary customers are the Big Three automakers, falls on hard times because wiper sales are dramatically down. Shieldwipe has a credit facility at a regional bank (secured by its assets), and the company’s physical plant and fixed assets are all in decent shape. Provided that even one of the Big Three automakers comes out of a bankruptcy reorganization alive, Shieldwipe believes it can win a new contract and continue production at some lesser level. That cost structure, however, would not allow the company to service its current debt. Understandably, the regional bank has no desire to expend significant resources to sue, especially since the bank would only get liquidation value of Shieldwipe’s collateral—minus the costs of litigation.

Faced with insolvency, it appears that Shieldwipe must either reorganize (but cannot bear the expense and burden associated with Chapter 11 filings) or liquidate. A less costly Chapter 7 filing might work for the liquidation option, but payments were previously made to the bank and the owners, which might lead to an unwanted preference action. Furthermore, Shieldwipe’s management would rather see its employees keep their jobs and believes there is a business to save. Under the circumstances, is there an alternative? If so, it may well be an assignment for the benefit of creditors.

Most assuredly, the current ownership will lose all equity and control through the ABC process. Under certain circumstances, however, one or more of the former equity holders may participate in the formation of the new ownership. The secured creditor (or the regional bank in the Shieldwipe example) will need to approve any sale of assets in order to provide its release of liens and mortgage. As such, the secured creditor must work closely with the assignee, and generally is the creditor that must approve budgets throughout the assignment. This is both a cost and a benefit in that it provides oversight and balances the interests of the secured creditor and the assignee, which acts as a fiduciary for all creditors.

An ABC liquidation, while streamlined in comparison to a Chapter 7 bankruptcy, can take a hybrid form—allowing an assignee to operate the company for a short period of time prior to liquidation (like a Chapter 11 reorganization), with the aid of some current employees and management (as in a Chapter 7 liquidation). This hybrid scenario is particularly beneficial if a new ownership group is waiting in the wings. After completing the sale of the insolvent company’s assets, the assignee can ease the transition to the successful buyer. Another benefit (although only to potential recipients of preference payments) is that no preference actions can be brought by the assignee.

In the Shieldwipe case, the ABC process proves successful. The company that emerges—with its own financing and new mix of ownership—is able to retain many of its best employees and achieve profitability over time.

In the end, the creditor that gets a seat at the table and actively participates in the insolvency process is the creditor that stands the best chance of obtaining favorable results. In the hypothetical case of Shieldwipe, participating creditors that are also suppliers may very well have parlayed a dying relationship into a new, profitable one by merely staying engaged in the difficult process of an insolvency proceeding.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

Kurt M. Carlson| Creditors’ Rights, Insolvency & Bankruptcy Litigation & Resolution

Kurt’s practice concentrates on representing creditors, assignees and businesses of all sizes in a variety of ways, including complex business litigation, workouts, insolvency proceedings, bankruptcy reorganization cases and complex settlement negotiations. Kurt has extensive experience in a broad range of quasi-business and legal issues companies must address. If you need assistance with a related matter, contact Kurt.

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