Find Out More About The Other Alternative To Business Bankruptcy, Which Is, Assignment
An Assignment for benefit of Creditors can be considered by business owners who don’t want to seek protection under a Chapter 11 business bankruptcy. This alternative should only be considered when the business is no longer sustainable due to an unprofitable product line and/or a mountain of debt. Chapter 7 and Chapter 11 business bankruptcy differ from an assignment for benefit of creditors. In fact, it is a substitute for Chapter 7 bankruptcy and business owners who need reorganization, not closure, must not consider it. A Chapter 11 bankruptcy should be opted for by businesses that need restructuring.
An Assignment for Benefit of Creditors is a process that is governed by state law and therefore it differs from state to state. It is supervised by state courts. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. It is usually the business owners and creditors who choose the assignee, and it is also vital that the chosen assignee is experienced and reputed. You need to take note that in the case of a business bankruptcy, it is the court that selects the case trustee. The business owner has to assign the business assets to an assignment estate.
A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After having sold business assets, the assignee would pay the creditors, deduct certain fees and costs from the proceeds and would return to the business owner whatever is left.
All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. The business owner files a list of all business creditors. Creditors are then informed by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. Once the assets are transferred to the assignment estate, the business becomes hollow. Even if a case is filed against the business, the creditor wouldn’t get anything.
When the market price of all the business assets is not enough to cover debts, business owners should choose Assignment over business bankruptcy. Assignment is less formal than a business bankruptcy process and moves much faster. Creditors cannot object to any sale made by the assignee. However, until the other party gives consent, an assignee could not force transfer contracts and leases. In a chapter 7 or Chapter 11 business bankruptcy, no such consent is needed. So, a business owner with franchisees should consider bankruptcy, not Assignment.
After the business assets are sold and the assignee is convinced that the whole process is finished, he makes a report and files it with the court. The court then passes an order that closes the case and the business owner becomes debt free. This is the difference between an Assignment and a Chapter 7 business bankruptcy.