The Uniform Law Commission Tackles ABCs: A Uniform Assignment for Benefit of Creditors Act

^{Laura N. Coordes is Professor of Law at Arizona State University’s Sandra Day O’Connor College of Law. She was the Reporter for the ULC’s Study Committee on Assignments for the Benefit of Creditors and currently serves as Reporter for the Drafting Committee on the same topic. She is writing this article in her individual capacity, and the views expressed herein are her own.}

Editors’ Note: Most regular DailyDAC readers are generally aware of assignments for the benefit of creditors (‘ABCs’). Often considered a state law alternative to Chapter 7, many but not all states permit a company to commence an ABC, as Professor Coordes explains below, to liquidate all its assets for the benefit of its creditors. In this article, Professor Coordes explains the work currently being done by the Uniform Law Commission (‘ULC’) to create a uniform act on the subject. [i]

Introduction

In 2023, the ULC formed a drafting committee (‘Drafting Committee’) with the aim of creating a uniform state act on ABCs. After providing some background on ABCs, the existing state of ABC law, and the ULC, this article discusses the work of the drafting committee and concludes with ways in which interested readers can become involved with the committee’s work.

What Is an ABC?

An ABC is a state-law liquidation tool and can be an important way for owners of distressed businesses to liquidate their assets. An ABC is voluntary, meaning it is initiated by the debtor.

It is a state-law alternative to procedures such as federal bankruptcy, state receiverships, and voluntary workouts. The procedure is governed by state statutory or common law. In an ABC, the ‘assignor,’ the company, voluntarily assigns all of its assets to an ‘assignee,’ a party acting in a fiduciary capacity whose job is to liquidate the assignor’s assets and distribute the proceeds to the assignor’s creditors. ABCs have their roots in trust law, and indeed, the operation of an ABC involves the creation of a trust, with the assignor’s creditors as the beneficiaries.

The laws governing the ABC process vary substantially from state to state in terms of both substantive content and coverage. [ii] Some states, such as Florida, [iii] New York, [iv] and New Jersey, [v] have very detailed statutory schemes. Others, such as Illinois and California, [vi] partially or wholly leave the process up to common law. Some states have no ABC statutes whatsoever, and in others, their existing laws may date from decades ago.

An ABC can be an attractive alternative to bankruptcy or other in- and out-of-court options for distressed businesses. However, if a state’s ABC laws are out of date or out of use, this important tool may not be available in practice. Indeed, the Study Committee appointed by the ULC to study this issue found that practitioners and judges in some states are very familiar with ABCs, while those in other states have no experience with ABCs at all. It is for this reason, among others, that the ULC formed the Drafting Committee to create a uniform ABC act.

The ULC and the Benefits of a Uniform ABC Act

The ULC’s objective is “to promote uniformity in the law among the several States on subjects where uniformity is desirable and practicable.” [vii] Its membership is composed of lawyers appointed by the governments of the 50 states, the District of Columbia, Puerto Rico, and the US Virgin Islands. The ULC has promulgated over 300 uniform and model acts, perhaps most notably the Uniform Commercial Code. [viii]

As noted above, prior to forming the Drafting Committee, the ULC formed the Study Committee to assess the benefits and drawbacks of creating a uniform act and to make a recommendation as to whether a uniform act on ABCs should be developed. The Study Committee found many potential benefits of a uniform ABC act. These benefits include:

• Provision of additional structure to ABCs. Currently, the law and practice of ABCs vary from state to state. A uniform act can provide a foundation of shared principles that states can draw upon to provide basic protections to parties and to define the ABC process. This may, in turn, inspire states to modernize any outdated ABC statutes or to codify aspects of their common law practice. Even a state with a well-developed and highly-used ABC law, such as Florida, could potentially benefit from a uniform ABC act by drawing upon the act for guidance on various specific issues.
• Encouraging further use of ABCs. As mentioned, in some states, ABC laws are outdated or out of use. A uniform act can provide an opportunity for states to update their ABC laws and to educate their practitioners on the benefits of ABCs and the unique role they can play in aiding distressed businesses, potentially increasing the use of ABCs as appropriate.
• Providing better coordination with other uniform laws. Other uniform laws, including the Uniform Commercial Code, address ABCs in various capacities. A uniform ABC act could provide clarity on how ABCs interact with other areas of the law.
• Promoting comity across jurisdictions. A uniform ABC act, if adopted by all the states, could allow for the coordinated use of ABCs by assignors with assets in multiple states.

The Drafting Committee’s Progress

The Drafting Committee began meeting in the fall of 2023. It has produced a draft act, which was first read to the ULC as a whole at the ULC’s annual meeting in July of 2024. The drafting process is ongoing, and the act is scheduled to have its second reading at the ULC’s annual meeting in July of 2025. The draft act and other materials are available on the ULC’s website, on the Assignments for Benefit of Creditors Committee’s webpage.

The draft act covers many aspects of ABCs, including eligibility to be an assignor and assignee, the effect of an assignment for the benefit of creditors, how creditors are notified of an assignment, the powers and duties of the assignor and assignee, how claims are resolved and distributions made from the assignment estate, how an assignment is wound up, and the extent to which a court may be involved in the ABC process.

Conclusion: Ways To Get Involved

The Drafting Committee has invited, and continues to invite, comments and feedback from practitioners and others who may be interested in this ABC act. Those interested may become involved as ‘observers.’ In spite of this title, an observer is not limited to merely observing the act’s progress.

Observers may attend the committee’s meetings, provide oral and written comments and suggestions, and review all documents relating to the committee’s progress.

If you are interested in becoming an observer, you can email [email protected]. You can also always keep up with what is going on with the act through the website, which is regularly updated. A diverse set of viewpoints from a wide range of interested parties aids the drafting process and, ideally, strengthens the final product, creating a useful and usable uniform act.

---

We think you’ll also like:

1. What Do Secured Lenders Want? The Basics of Loan Forbearance Agreements
2. Fraudulent Transfer Remedies: How Much Is Enough?

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Complex Financial Litigation / Common Issues and Strategies in Business Breakups
2. Advanced Bankruptcy Transactions Series 
3. Bankruptcy Intersections

This article was originally published on February 17, 2025.]

©2025. DailyDAC^TM, LLC. This article is subject to the disclaimers found here.

---

References

[i] “The Uniform Law Commission (ULC, also known as the National Conference of Commissioners on Uniform State Laws), established in 1892, provides states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law.”  See https://www.uniformlaws.org/aboutulc/overview (last visited 2/9/25). The ULC and the American Law Institute created the Uniform Commercial Code. See also, Notes 8 and 9.

[ii] See Carly Landon, Note, Making Assignments for the Benefit of Creditors as Easy as A-B-C, 41 Fordham Urb. L.J. 1451, 1473 (2014) (“Common law ABCs are admittedly hard to summarize, because there are no comparable statutes and each state’s case law differs from other states’ case law.”).

[iii] Fla. Stat. Ch. 727.101-727.116 (2017).

[iv] N.Y. Debt & Cred. Law §§1-24.

[v] N.J. Stat. Ann. §§2A:19-1 to 2A:19-49 (2009).

[vi] California’s statutory ABC scheme was repealed in 1978. Today, various provisions of California law, including provisions in the Civil Code, the Code of Civil Procedure, and the Uniform Commercial Code, apply to ABCs.

[vii] Uniform Law Commission Constitution, Article 1, § 1.02, available at https://www.uniformlaws.org/aboutulc/constitution#Article1.

[viii] “Acts Overview,” Uniform Law Commission, https://www.uniformlaws.org/acts/overview.