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Bankruptcy and Reorganization
A bankruptcy and reorganization of a corporation will often require the assistance of a professional business appraiser to determine the fair market value of the business in situations where there is a debtor in possession, secured creditor claims, or where there is a plan of reorganization. A bankruptcy requires an appraiser to understand how proposed capital structures affect value, how value is affected under specific assumptions such as going-concern versus orderly liquidation, and how value should be allocated across company assets.
An Assignment for the Benefit of Creditors (ABC) is an option that can be utilized to help overcome the time and expense incurred in Chapter 7 trustee liquidation sales. An ABC is analogous to bankruptcy under the United States Code. Unlike a Chapter 7 bankruptcy, however, an ABC should only be considered if there are assets to liquidate. The significant difference is the ability to avoid administrative procedures that govern Bankruptcy Court proceedings. Assignments lessen the time required to sell assets, increase the liquidation options, and keep costs substantially lower, often resulting in a greater return for creditors.
In the United States, a general assignment is simply a contract whereby the insolvent entity ("Assignor") transfers legal and equitable title, as well as custody and control of its property, to a third party ("Assignee") in trust, to apply the proceeds of sale to the assignor's creditors in accord with priorities established by law.
Benefits of an ABC include:
- Rhe Assignee is selected by the company and is not court appointed
- There is usually less notoriety than with a bankruptcy
- The ABC is cost effective
- The process is less formal, with few or no court hearings
- The ability to move with speed
- Flexibility to permit smart business choices
- Asset sales can occur quickly, allowing for a higher price under such circumstances
- Limited operations can be continued to maximize remaining value
- Contractual obligations can be negotiated and resolved efficiently
- Usually provides closure and finality to the company, its board and its management