Assignment for the benefit of creditors: what it is and how it works.
An ABC is a state-law alternative to Chapter 7 bankruptcy: the company hands its assets to an assignee it chooses, who sells them and pays creditors. This guide covers each step, the state rules and the risks. If the company’s Slack, email or CRM history is among those assets, request an offer to license it.
What an assignment for the benefit of creditors is
An assignment for the benefit of creditors, or ABC, is a voluntary alternative to formal bankruptcy. An insolvent business transfers its property to a trust. A trustee, called the assignee, sells it and pays creditors from the proceeds, and anything left over goes back to the business.1
The company making the transfer is the assignor. The assignee takes legal title and owes the creditors the duties a trustee owes the beneficiaries of a trust. The assignor does not need its creditors’ consent to make the assignment, because an owner may transfer title to its own property.2
A general assignment covers all of the debtor’s property for all of its creditors. A special assignment benefits only named creditors. The ABCs companies use to close are general assignments, and the state statutes are written for them.2
ABCs are creatures of state law, not the Bankruptcy Code. Most states have statutes that regulate them, and the rules on filings, bonds and court supervision differ widely.2
How an ABC works, step by step
The board decides
The directors conclude the company cannot pay its debts and that a sale run by an assignee will return more than the alternatives. Kupetz notes the assignor can choose an assignee with the right experience, while a Chapter 7 case generally gets an unknown trustee.3
Stockholders approve
Depending on state law and the charter, stockholder approval may be needed, which can be hard to get for a company with many holders.1 In Delaware, a transfer of all or substantially all assets is authorized by a resolution of the holders of a majority of the outstanding stock entitled to vote.12
The assignment is signed
The company signs an assignment agreement conveying all its assets to the assignee, in trust. Under California’s definition, a general assignment covers all of the debtor’s transferable, non-exempt assets, is for the benefit of all its creditors, and does not itself prefer one creditor over another.5
The assignee takes control
From that moment the assignee, not the founders or the board, controls the bank accounts, contracts, intellectual property and records. The assignor gives the assignee a list of creditors and equityholders, signed under penalty of perjury.6
Creditors are notified
In California the assignee must give written notice to creditors, equityholders and other parties in interest within 30 days after accepting the assignment in writing.6
The assets are sold
The assignee collects receivables and sells the assets, by auction, sometimes with a stalking-horse bidder, or in a going-out-of-business sale. Buyers often prefer this route because the assets come cleansed of later claims that they were taken in a fraudulent transfer.34
Claims are filed
The California notice sets a claims deadline that is not less than 150 days and not more than 180 days after the first notice. A creditor who misses it can lose its share.6
Preferences are clawed back
The assignee can recover certain payments made to creditors in the 90 days before the assignment, or up to one year before for insiders who had reasonable cause to believe the company was insolvent. Ordinary-course payments and contemporaneous exchanges are exempt.7
Distribution and closing
The assignee pays claims in the priority set by state law or the assignment, in full or pro rata, files an accounting of money in and out, and closes the estate.4
ABC, Chapter 7 or dissolution
The three routes end in the same place, a company with no assets left, but they differ on who runs the sale and what protects it.
| ABC | Chapter 7 bankruptcy | Dissolution | |
|---|---|---|---|
| Who sells the assets | An assignee the company chooses3 | A trustee appointed in the case3 | The company’s own board |
| Court involvement | None or limited, depending on the state4 | Federal bankruptcy court throughout | State filing only |
| Stay on creditor collection | No automatic stay4 | Automatic stay | None |
| Sale free and clear of liens | No; secured creditors must agree or be paid4 | Yes, through a Section 363 sale4 | No |
| Cost and speed | Usually faster, with less administrative expense3 | Slower and more formal | Fast if the company can pay everyone |
| When it fits | Insolvent, with assets worth selling and creditors unlikely to object | Contested claims, a needed stay, or a sale free of liens | Solvent: every creditor can be paid |
State rules differ
California runs ABCs mostly outside court, under common law plus statutes on notice, claims and preferences.1 The 30-day notice, the 150-to-180-day claims window and the 90-day preference period above are California’s.6
Florida runs them through the courts under Chapter 727. The assignee files in the office of the clerk of the court in the county of the assignor’s place of business and posts a bond of not less than $25,000, or double the liquidation value of the unencumbered liquid assets if that is higher.8
New York governs ABCs under Article 2 of its Debtor and Creditor Law, and its look-back for preferences and fraudulent transfers is four years, according to a 2023 KI Legal overview.4
Other states have their own filing, bonding and court-supervision rules, so the assignee and company counsel should be in the state whose law governs the assignment.
Risks and limits
Creditors can still force a bankruptcy
An involuntary Chapter 7 petition can be filed by three or more creditors holding undisputed claims. The court orders relief if, within 120 days before the petition, a custodian was appointed or took possession of the debtor’s property.10 An ABC assignee counts as a custodian under the Bankruptcy Code.9
The assignee then hands everything over
Once a bankruptcy case starts, a custodian must deliver any property of the debtor it holds, and the proceeds, to the bankruptcy trustee.11
No stay, no free-and-clear sale
Without an automatic stay, a secured lender can still foreclose on its collateral, and a sale does not strip liens the way a Section 363 sale does.4 Many ABCs start with the lender’s agreement for that reason.
Debts do not disappear
If the sale proceeds fall short, the debtor remains liable for the rest.2 For a corporation that liability stays with the shell, but personal guarantees signed by founders can still be enforced against them.
Employees
The ABC does not change WARN Act or final-pay obligations. Unpaid wages are usually a priority claim in the distribution.
What happens to the company’s data and records in an ABC
The assignment transfers all of the company’s transferable assets.5 That includes the workspace archive: Slack or Teams history, email, the CRM, support tickets and code. After the assignment, only the assignee can sell or license them.
Those records have become an asset an estate can sell. MIT Technology Review reported in October 2026 that 47% of deals at SimpleClosure, a wind-down firm, now include code or data sales. In Spirit Airlines’ bankruptcy, Google outbid the AI data company Mercor for the carrier’s records, including 100 million emails and 500 million Teams messages. The price tag: $10 million.13
The archive only has value if it still exists. If the systems are downgraded to save cash, all data in a free Slack workspace that’s more than one year old will be deleted.15 When a Microsoft 365 subscription ends, Microsoft keeps the data for 90 days so it can be extracted, then deletes it.16 Keep the paid plans and one admin account until the records are exported or delivered.
Privacy promises travel with the data. The FTC has warned that changing data practices through a surreptitious, retroactive amendment to terms or a privacy policy may be unfair or deceptive. An assignee licensing records is bound by what the company promised when it collected them.14
Allied arranges non-exclusive licenses of company records to AI labs. The assignor or the assignee licenses; Allied does not buy the data. A written offer naming the lab follows one to two weeks after a discovery call. Names, contact details and customer identities are anonymized before anything leaves. The lab pays by wire 30 to 60 days after it accepts delivery, and the proceeds go to the estate for creditors.
The usual fit is 30 or more office employees with years of records, and licenses typically run $100K–$2M. Assignees and company counsel can request an offer before the assignment or after it. What can be licensed, and who can sign at each stage of a shutdown.
When an ABC makes sense
It fits
The company is insolvent, its assets are worth more sold together and quickly, the secured lender agrees, and few creditors are likely to contest the process.
It does not fit
Creditors are hostile, the company needs a stay to stop a foreclosure or lawsuit, a buyer insists on a sale free of liens, or the company can pay everyone, in which case a plain dissolution is simpler.
Before signing
Pick the assignee early, keep the systems that hold the records running, freeze payments that could be clawed back as preferences, and have counsel in the governing state review the assignment.
Questions
Is an assignment for the benefit of creditors the same as bankruptcy?
No. It is a state-law process, run by an assignee the company chooses, usually with little or no court involvement. Bankruptcy is federal, court-supervised and gives an automatic stay that an ABC does not.
Who chooses the assignee?
The company does, by board decision before the assignment is signed. Assignees are usually firms or professionals that specialize in liquidating businesses.
Do creditors have to agree to an ABC?
No. The owner can transfer its own property without creditor consent. Creditors who object can try to put the company into an involuntary bankruptcy instead.
How long does an ABC take?
Usually months. Creditors get a fixed window to file claims after the first notice (California’s is in the steps above), and the assignee distributes only after the claims are reviewed and the assets sold.
What happens to the founders and the board?
They lose control of the assets at signing. The corporation’s debts stay with the corporation, but personal guarantees remain, and the assignee can pursue preference and fraudulent-transfer claims.
Can an assignee sell the company’s Slack and email archive?
Yes, as part of the estate’s assets, subject to the privacy policy, customer contracts and employee policies in force when the records were collected. The proceeds go to creditors.
Is this legal advice?
No. It is a general description of how ABCs usually work, with California, Florida and New York as examples. Have counsel in the governing state review any assignment.
Sources
- Cornell Legal Information Institute, Wex, “assignment for benefit of creditors”
- West’s Encyclopedia of American Law, “Assignment for Benefit of Creditors” (Encyclopedia.com)
- David S. Kupetz, “ABCs for Salvaging Deflated Start-Ups, Distressed Businesses,” Bloomberg Law, April 8, 2020
- Kyriaki Christodoulou, KI Legal, “Assignment For The Benefit Of Creditors: An Overview,” Mondaq, 2023
- California Code of Civil Procedure § 493.010, definition of a general assignment for the benefit of creditors (California.Public.Law)
- California Code of Civil Procedure § 1802, notice to creditors and claims date (California.Public.Law)
- California Code of Civil Procedure § 1800, recovery of preferential transfers (California.Public.Law)
- Florida Statutes § 727.104, commencement of proceedings and bond
- 11 U.S.C. § 101(11), definition of custodian (Cornell Legal Information Institute)
- 11 U.S.C. § 303, involuntary cases (Cornell Legal Information Institute)
- 11 U.S.C. § 543, turnover of property by a custodian (Cornell Legal Information Institute)
- Delaware Code, Title 8, Chapter 1, Subchapter X, § 271 (sale of all or substantially all assets)
- MIT Technology Review, “AI labs are buying data from dead startups to train their models,” October 13, 2026
- Federal Trade Commission, “AI (and other) Companies: Quietly Changing Your Terms of Service Could Be Unfair or Deceptive,” February 13, 2024
- Slack Help Center, “Feature limitations on the free version of Slack”
- Microsoft Learn, “Data retention, deletion, and destruction in Microsoft 365”
General information, not legal advice. ABC law is set state by state; this page uses California, Florida and New York as examples.
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