Insufficient liquidity shrinks the range of options for a financially distressed business. The metaphor of a melting ice cube is often used to illustrate the situation. When the cash runs out and the company is unable to pay its employees or vendors, the ice cube has melted. The business has failed, and recoverable value has collapsed.
To anyone practicing bankruptcy law more than a month, the scenario of a lender secured by a lien against real property, as well as an assignment of rents (“AOR”) is pretty standard fare. Default on the debt occurs, threats (and counter threats) are tossed about, notices of foreclosure are filed (and perhaps receivership proceedings were […]
In “Assignments for the Benefit of Creditors: Simple as ABC?” Robert L. Eisenbach III provides a brief and clear summary of ABC procedures, and illustrates the process usefully with a hypothetical scenario of a cash-negative company with insufficient money to fund further operations and no likely prospects for credit, and which has specific technology assets that a […]
A debtor has the power to assume and assign executory contracts even when those contracts expressly bar such assumption and assignment (see section 365(f) of the Bankruptcy Code). Thus, the debtor may sell its interests under a contract over its counterparty’s objection. This power may be very beneficial to a debtor in possession (and its creditors) […]
This detailed story illustrates how a troubled company considered its duties and its options, then executed a strategy using an Assignment for the Benefit of Creditors (“ABC”) to mitigate successfully its potential losses. This story puts meat onto more skeletal discussions of ABC rules and how they compare with competing resolution structures under the Bankruptcy […]
Editor’s Note: This article provides a broad overview of the use of state law assignments for the benefit of creditors (ABCs) as an efficient alternative to chapter 11 and chapter 7 liquidations conducted under federal law. For a great discussion on other options available to struggling businesses, we recommend this webinar. Financially distressed businesses faced with unlikely […]