assignment for the benefit of creditors wisconsin

Assignments for the Benefit of Creditors: Wisconsin | Practical Law

Assignments for the Benefit of Creditors: Wisconsin

Practical law state q&a w-030-1306  (approx. 25 pages).

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• Receiverships in Wisconsin

Receiverships also known as Assignment for the Benefit or Creditors in Wisconsin

When a company or a debtor defaults on their debt payments, secured lenders are in a very precarious position. At that point, both the company and the lenders have various options. The debtor can go through the bankruptcy process , or propose an out of court work out or forbearance agreement to its lenders. Some lenders have opted for a receivership as an alternative to bankruptcy.

The lender and some creditors may be paid from the proceeds of property sales, liquidation of assets and the process can be quicker and more efficient than bankruptcy. Usually, this is accomplished through a court-appointed receiver who handles the orderly liquidation or sale as a going concern subject to the supervision of the state court.

The purpose of a receivership is to maximize payments to creditors and those who have an interest in the property. The receivership will last as long as necessary to achieve a sale as a going concern or orderly liquidation of the debtor’s assets. The court-appointed receiver usually has broad authority to sell property and take other measures to sell the assets and wind down the business.

The Receivership Process in Wisconsin

Usually, a creditor will begin the receivership process in Wisconsin.

The secured creditor must show the court that one of the following exists in order for a selfish receiver  or a chapter 128 receiver to be appointed:

• The property at issue is in the possession of an adverse party, and the property itself, or its rents and profits, are in danger of being lost or materially impaired.
• If a judgment is at issue, the property is necessary to carry the judgment into effect, or it is necessary to dispose of the property according to the judgment.
• It is necessary to preserve the property during the pendency of an appeal
• A corporation has been dissolved or is insolvent (a receiver may also be appointed when there is an imminent danger of insolvency)

The creditor would also propose a certain person to serve as the receiver and demonstrate their qualifications to the court.

When the court appoints a receiver, it will issue an order that sets forth the duties of the receiver and the scope of their authority. The receiver will need to make sure that they stay within the bounds of the court order.

The Role of a Receiver in Wisconsin

Although the receiver is an officer of the court, they also owe a fiduciary duty to those who have an interest in the property, including creditors and potentially shareholders. These duties vary depending on whether the receiver is appointed as the “selfish receiver of a creditor” or after an “assignment for the benefit of all creditors.”

The receiver will take possession of all the debtor’s property and thereafter orderly sell the assets and wind down the business.

If a company is in receivership, the management of the receivership company would usually remain in place, although they have little power and authority. In some cases, the receiver may replace the company’s management if they believe that it is in the best interests of the creditors or anyone else who has an interest in the property.

Types of Receiverships in Wisconsin

There are three types of receiverships in Wisconsin:

• Chapter 128 Receiverships – A general receiver is appointed to administer all of the debtor’s property, with the authority to sell or otherwise wind down the business.   
• Selfish Receiverships – A receiver is appointed to collect a judgment for a judgment creditor. The receiver will sell enough property to satisfy the judgment, and then the receivership will end.
• Receiverships pendente lite – Receivers may be appointed while the litigation is pending to manage and preserve property in advance of the outcome of the litigation.

Benefits and Drawbacks of Receiverships in Wisconsin

Receiverships have emerged as a popular alternative to bankruptcy. All the stakeholders have pros and cons, too many to mention here. Generally, a receivership may be less expensive than bankruptcy and faster.

However, there are reasons why a receivership may not be the best option

• Assets may be sold for less than they are worth to bring a quicker resolution.
• Receivership can still lead to negative publicity that can hinder the value of the receivership property.
• There may be less predictability to the receivership process since there is not as extensive of an applicable body of law and a recent Wisconsin Supreme Court case may call into question the order of priority among creditors of different classes.

Receivership Sales in Wisconsin

Property sales are common in a Wisconsin receivership. Courts are accepting of these sales as a means to liquidate the assets in an orderly fashion. Once the process is complete, the state court will usually enter an order that the buyer will receive the property free and clear of any liens or encumbrances. These state court orders may not be absolutely enforceable especially in other states or countries.

In selling the property, the receiver should use commercially reasonable procedures, and they should aim to maximize the return for the parties who have an interest in the property. They must be mindful of their fiduciary duties and the possibility that they could be personally liable if they fail to uphold their own duties.

The Benefits of Hiring an Attorney knowledgeable about Receiverships.  

All parties to a receivership should have legal representation in the process. The debtor who is subject to a receivership still has rights, and an attorney could help protect them throughout the process. In addition, the receiver themselves should consider getting legal advice when necessary in light of their own duties. Receivers sometimes sue insiders and other creditors to recover transfers made to them in the months leading up to the appointment of a receiver. These “targets” also benefit from legal representation.  

Swanson Sweet LLP assists companies that are in financial distress. We have in-depth experience with receivership law through our decades of combined experience. To schedule an appointment to speak with a receivership attorney, contact us.

Practice Areas

• Business Bankruptcy Lawyer in Wisconsin
• Wisconsin Business Law
• Wisconsin Consumer Bankruptcy Lawyer

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What Is an Assignment for the Benefit of Creditors and How Does It Differ From a Bankruptcy? - Creditor’s Rights Toolkit

An assignment for the benefit of creditors (ABC) is a process by which a financially distressed company (referred to as the assignor) transfers its assets to a third-party fiduciary (referred to as the assignee). The assignee is responsible for liquidating those assets and distributing the proceeds to the assignor's creditors, pursuant to the priorities established under applicable law.

Troutman Pepper's Creditor’s Rights Toolkit is a series that provides practical insights to help creditors confront the challenges of commercial bankruptcy.

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Assignment for the Benefit of Creditors (WI)

Working with a Financially Distressed Customer: The ABCs of an Assignment for the Benefit of Creditors

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When faced with the deteriorating financial condition of a customer or client, there is one simple rule of thumb that every creditor should follow: always participate in the insolvency process. Creditors that stay on the sidelines are doomed to the results others fail to attain.

I like to play blackjack in Vegas (one of my last remaining vices). Believe it or not, insolvency proceedings and that game of cards are alarmingly similar. First, if you don’t have a seat at the table, you will have no chance at getting a distribution. Second, in order to play the game, your seat at the table will cost you money on the front end. Third, if you don’t know the rules, you are destined to lose. Finally, if you don’t know your odds, you will end up losing far more than you win.

Clients or customers on the brink of insolvency may introduce you to the phrase “assignment for the benefit of creditors” (ABC). If so, my advice is to take a lesson from blackjack and get your seat at the table. At the very least, explore the insolvency process with them. If it makes sense, you should also participate actively—even if it costs you a little money. To do so, you will first need a working knowledge of the process.

What Is an Assignment for the Benefit of Creditors?

An ABC is a voluntary, out-of-court transfer of a debtor’s property (of every kind and nature) to a third-party trustee (more commonly known as an assignee). This type of insolvency proceeding is designed to provide a mechanism for liquidating a company’s assets in an orderly fashion. In some cases, a buyer will take over the company through an operating assignment, which may allow for the continuation of business for a period of time.

Because there is no statutory scheme in place for ABCs in Illinois, the process is strictly based on common law. Generally, assignments may not be made in the face of a validly issued and served citation to discover assets, which is a post-judgment recovery process that prohibits the voluntary transfer of property to an assignee. While an ABC does not require approval by the creditors, it helps if they are at least involved in the process. Still better is when one of the primary creditors has a hand in drafting the trust document, which establishes the ABC and lays out the rules of the assignment. Although most assignees have their own standard forms, many are willing to work with creditors to customize several aspects of those documents. As a creditor, your involvement in drafting the trust document could mean the difference between having a budget in place for the assignee or allowing the assignee and legal counsel to operate the business (or wind it down) without any budgetary constraints whatsoever.

Shieldwipe: A Case Study

In order to better understand when an ABC is useful, consider the hypothetical example of Shieldwipe, a fictional manufacturer of windshield wipers. Let’s say that Shieldwipe, whose primary customers are the Big Three automakers, falls on hard times because wiper sales are dramatically down. Shieldwipe has a credit facility at a regional bank (secured by its assets), and the company’s physical plant and fixed assets are all in decent shape. Provided that even one of the Big Three automakers comes out of a bankruptcy reorganization alive, Shieldwipe believes it can win a new contract and continue production at some lesser level. That cost structure, however, would not allow the company to service its current debt. Understandably, the regional bank has no desire to expend significant resources to sue, especially since the bank would only get liquidation value of Shieldwipe’s collateral—minus the costs of litigation.

Faced with insolvency, it appears that Shieldwipe must either reorganize (but cannot bear the expense and burden associated with Chapter 11 filings) or liquidate. A less costly Chapter 7 filing might work for the liquidation option, but payments were previously made to the bank and the owners, which might lead to an unwanted preference action. Furthermore, Shieldwipe’s management would rather see its employees keep their jobs and believes there is a business to save. Under the circumstances, is there an alternative? If so, it may well be an assignment for the benefit of creditors.

Most assuredly, the current ownership will lose all equity and control through the ABC process. Under certain circumstances, however, one or more of the former equity holders may participate in the formation of the new ownership. The secured creditor (or the regional bank in the Shieldwipe example) will need to approve any sale of assets in order to provide its release of liens and mortgage. As such, the secured creditor must work closely with the assignee, and generally is the creditor that must approve budgets throughout the assignment. This is both a cost and a benefit in that it provides oversight and balances the interests of the secured creditor and the assignee, which acts as a fiduciary for all creditors.

An ABC liquidation, while streamlined in comparison to a Chapter 7 bankruptcy, can take a hybrid form—allowing an assignee to operate the company for a short period of time prior to liquidation (like a Chapter 11 reorganization), with the aid of some current employees and management (as in a Chapter 7 liquidation). This hybrid scenario is particularly beneficial if a new ownership group is waiting in the wings. After completing the sale of the insolvent company’s assets, the assignee can ease the transition to the successful buyer. Another benefit (although only to potential recipients of preference payments) is that no preference actions can be brought by the assignee.

In the Shieldwipe case, the ABC process proves successful. The company that emerges—with its own financing and new mix of ownership—is able to retain many of its best employees and achieve profitability over time.

In the end, the creditor that gets a seat at the table and actively participates in the insolvency process is the creditor that stands the best chance of obtaining favorable results. In the hypothetical case of Shieldwipe, participating creditors that are also suppliers may very well have parlayed a dying relationship into a new, profitable one by merely staying engaged in the difficult process of an insolvency proceeding.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

Kurt’s practice concentrates on representing creditors, assignees and businesses of all sizes in a variety of ways, including complex business litigation, workouts, insolvency proceedings, bankruptcy reorganization cases and complex settlement negotiations. Kurt has extensive experience in a broad range of quasi-business and legal issues companies must address. If you need assistance with a related matter, contact Kurt .

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Is an Assignment for the Benefit of Creditors like a Bankruptcy?

At first, an assignment for the benefit of creditors (ABC) may seem similar to a bankruptcy claim. However, upon a deeper look, it is clear that an assignment for the benefit of creditors is different. Similar to liquidation proceedings in chapter 7 or chapter 11 bankruptcy proceedings, an ABC can be used by either an individual or a business if they are going through significant financial difficulties. In both cases, the struggling debtor sells off all its assets in order to pay back its outstanding debts to its creditors. This mechanism helps to maximize the return for creditors.

An assignment for the benefit of creditors is distinct from bankruptcy proceedings because it is a much less formal process governed by state law rather than federal law. The informal nature of these proceedings means that it is faster and easier to marshal a debtor’s assets, liquidate same, and distribute proceeds equitably to creditors under an assignment rather than under federal bankruptcy law. Furthermore, an ABC often requires less court involvement and provides more flexibility to the assignee to make liquidation decisions as required. This is generally beneficial for both creditors and debtors because it is faster, less expensive, and more private than traditionally afforded bankruptcy liquidations.

Understanding Assignment for the Benefit of Creditors in New Jersey

In New Jersey, an assignment for the benefit of creditors is governed by New Jersey statutes that codify the preexisting common law. The proceedings are voluntary processes whereby the debtor designates an assignee who is empowered to marshal and liquidate (sell) the assets of the debtor and then distribute the proceeds of the sale to the debtor’s creditors. The assignee must ensure that all of the financial liquidations are done for the benefit of the creditors and with the sole goal of repaying outstanding debts. This is significant because in New Jersey, the debtor can choose its assignee rather than relying on a court-appointed trustee in bankruptcy who may not understand the nuances of the debtor’s finances. The ability to choose the assignee can be beneficial because an assignee with an understanding of the debtor’s finances can expedite the liquidation process rather than spend valuable time learning the ropes.

An ABC in New Jersey is generally cheaper than filing formal bankruptcy proceedings because it is faster and usually requires less litigation. The expeditious nature cuts down on the debtor’s and creditor’s legal bills and other costs associated with ongoing litigation. Still, creditors should be counseled to make sure that the liquidation is being conducted properly, and that the assignee is obtaining a fair return on the sale of the assets to maximize the recovery of the debts owed to the creditors.

FSKS is on Your Side

At FSKS, our attorneys are experienced in both bankruptcy and assignments for the benefit of creditors in New Jersey. We have a strong track record of success in the area of creditor’s rights and pride ourselves on being one of the strongest and most successful Creditors’ Rights firms in New Jersey, New York, and Pennsylvania. We’re ready to give you trusted advice and help maximize your return.

If you require assistance with or have questions regarding an assignment for the benefit of creditors in New Jersey, please contact Vincent DiMaiolo, Jr. ( [email protected] ), Nicholas Canova ( [email protected] ), or Tammy L. Terrell-Benoza ( [email protected] ) at (973) 538-4700 .

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Assignments for the Benefit of Creditors

Assignments for the benefit of creditors.

Assignments for the benefit of creditors are an effective and efficient alternative to bankruptcy. DSI ABCs provides an Assignee that will move nimbly within your state’s laws, communicate openly and with transparency to your creditors, manage equity’s expectations, and negotiate with lenders and investors toward the maximal outcome.

Work With Us

DSI ABCs is led by Steven L. Victor, a leader in the field of ABCs with decades of experience in the related restructuring, bankruptcy and ABC fields. DSI ABCs proceeds from a basic fact: your circumstances are unique to you. Your assignee will staff the case with professionals whose experience is suited to the needs of the business and the industry in which it operates and who can navigate the markets for the company or its assets and the often-competing demands of company stakeholders.

Who We Serve

Secured lenders, private equity and venture capital firms and principal of the distressed business and the Board of Directors all look to the assignee as a fiduciary that can maximize creditor recoveries.

Case Studies

Assignee for the Benefit of Creditors

• ABC under Delaware Law
• Liquidation of multi-state operations across the country
• Work with state environmental agencies to ensure all work had been properly done

• ABC of a for-profit education provider
• Assignment with the consent of the secured lender group
• Managed the resolution of U.S. Department of Education claim
• Manages continuing requests for transcripts from former students

• Business was maintained post-assignment through a Transition Management Services Agreement with the stalking horse bidder
• Chancery Court required additional post-assignment marketing before approving the sale
• Process preserved the going concern value of the business which reduced the loss by all classes of creditors