Must an Assignee for the Benefit of Creditors Give Notice to Creditors Before Selling the Assignor's Assets?
Assignments for the benefit of creditors are a terrific tool to facilitate the liquidation of assets of a failing enterprise. In this article, my partner, Ben Young, explains why a recent opinion from the California Fourth District Court of Appeal missed the point and why ABCs remain a powerful tool available to get the bank paid.
GIVE NOTICE TO CREDITORS BEFORE SELLING THE ASSIGNOR'S ASSETS?
by Bennett G. Young
Assignments for the benefit of creditors (ABC's as they are called) are known for their speed and flexibility. In California, the practice of an ABC occurring followed seconds later by a sale of the assignor's assets is well established. The buyer's ability to take over the failing business quickly in a seamless transition is a principal benefit of the ABC process. The speed and the seamless transition help preserve going concern values for the benefit of creditors.
A recent unpublished decision of a California appellate court appears to question this practice. El Saad v. Tarakji, No. G044716, 2011 WL 5910059 (Cal. Ct. App. Nov. 28, 2011). In Tarakji, Callcom obtained a fraud judgment against West Coast Distributors. One month later, West Coast made an assignment for the benefit of creditors and three days later the assignee sold all of West Coast's assets to Platinum Touch, a newly formed entity owned by West Coast's insiders, for $20,000 cash and the assumption of $4.7 million in purported secured debt.