The assignment for the benefit of creditors is a common tool used to assist insolvent business entities in discharging of their debts.

In this scenario, the debtor assigns all their assets to a third party who manages the liquidation of those assets. This third party operates similarly to a bankruptcy trustee, in that their duty is to the creditors and to maximize the value of the asset upon liquidation.

However, this third party is free to operate without the court supervision typical of bankruptcy proceedings.

Once the assets are liquidated, the third party pays out monies to the creditors based on priority. Secured creditors and priority claimants are paid first. Any remaining creditors who agree to the assignment are paid out on a pro rata basis.

The assignment for the benefit of creditors is an attractive option because it typically results in a fuller and quicker disposition of the proceeds of the asset sale.

Among the drawbacks to be mindful of is that even though the assignment for the benefit of creditors may help pay off debts, it does not secure a discharge of that underlying obligation.

Contact EV Law Group today to discuss this option and other available options to help your business manage its debt obligations.