A California assignment for the benefit of creditors, often called an ABC, is a state-law alternative to bankruptcy that lets a financially distressed business transfer all of its non-exempt assets to a neutral third party, called an assignee, who liquidates them and pays creditors from the proceeds. It’s governed by the California Code of Civil Procedure and runs without court supervision, which is why it tends to be faster, quieter, and cheaper than a Chapter 7. The trade-off is real: no automatic stay pauses creditor collection, and remaining debts are not discharged when the process ends.1California Legislative Information. California Code of Civil Procedure 493.010 (2025)
How the Process Works
An ABC begins when the distressed company’s board votes to assign all of the company’s transferable, non-exempt assets to an assignee it selects. Under CCP Section 493.010, a valid general assignment must reach every asset that could be seized on a money judgment, must benefit all creditors, and cannot itself create a preference for one creditor over another, though it may recognize preferences that already exist in law.1California Legislative Information. California Code of Civil Procedure 493.010 (2025)
The deal is documented in a written assignment agreement between the company (the assignor) and the assignee. Once the assignee accepts in writing, they must send written notice to all known creditors within 30 days.2California Legislative Information. California Code of Civil Procedure CCP 1802 From then on, the assignee holds and controls the assets, converts them to cash, and distributes proceeds. Most ABCs wrap up in about 12 months. Complex cases take longer.
No petition is filed. No judge signs off on sales. No formal hearing approves the wind-down. That absence of judicial machinery is the main reason ABCs move faster and cost less than bankruptcy. It also means no court order blesses the transaction, which matters when a buyer is in the picture.
Choosing the Assignee
The company picks its own assignee. That’s a meaningful difference from Chapter 7, where a trustee is either randomly assigned or elected by creditors. Picking the assignee lets the board choose someone with industry knowledge, existing buyer contacts, or a track record of recovering value in similar liquidations.
Once appointed, the assignee owes fiduciary duties to all creditors of the estate, not to the assignor and not to any single creditor. The core obligation is to maximize total recovery. That may mean selling the business as a going concern, auctioning assets piecemeal, or negotiating targeted settlements. The assignee also runs day-to-day operations if the business is still functioning during the wind-down.
California law gives the assignee a short right to stay on the assignor’s leased premises. Under Civil Code Section 1954.1, even if the assignment would otherwise trigger a lease default, the assignee can occupy and operate from the premises for up to 90 days. That window is often what makes a going-concern sale possible, because buyers need to know the location will still be there during the transition.
How Creditors Get Paid
After sending notice, the assignee collects and evaluates claims. Creditors should file promptly. The assignee will set a bar date, after which late claims may be reduced or excluded from distribution entirely.
Distribution follows a familiar hierarchy. Secured creditors with valid liens are paid first from their collateral. Administrative costs of the assignment, including the assignee’s fee, are paid as a priority. Unsecured creditors share pro rata in whatever remains. If anything is left after everyone is paid in full, which is rare, it goes back to the assignor or its equity holders.
Preference Claw-Backs Under CCP Section 1800
One of the assignee’s sharpest tools is the ability to recover preferential payments the company made shortly before the assignment. Under CCP Section 1800, a transfer can be clawed back if it was made to a creditor on account of a pre-existing debt, while the company was insolvent, within 90 days before the assignment, and it let that creditor receive more than others in the same class would receive through the ABC.3California Legislative Information. California Code of Civil Procedure Section 1800
For insiders, meaning officers, directors, or their family members, the lookback stretches to one year, and the transfer is recoverable if the insider had reasonable cause to believe the company was insolvent when the payment was made.3California Legislative Information. California Code of Civil Procedure Section 1800 If your company paid down a large vendor balance or repaid a loan to an officer in the months before the assignment, expect the assignee to look closely at those transactions.
What an ABC Doesn’t Do
Two limitations shape almost every decision about whether an ABC is the right path.
No Automatic Stay
When a company files for bankruptcy, 11 U.S.C. Section 362 immediately halts virtually all collection activity: lawsuits, foreclosures, garnishments, repossessions.4Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay California’s ABC has no equivalent. Creditors remain free to sue the assignor, enforce judgments, and pursue collection while the assignee is working. Most creditors cooperate voluntarily because litigation is expensive and the ABC will produce a distribution faster than a court fight, but cooperation is optional. When a company faces active litigation or an especially adversarial creditor, the missing stay can be decisive.
No Debt Discharge
When the assignee finishes distributing proceeds and closes the estate, any debts that weren’t paid in full survive. Creditors who received partial payment still hold claims against the assignor for the unpaid balance.
For an LLC or corporation, this matters less than it sounds. The entity has already handed over all its assets. Once the ABC ends, the company is a shell with nothing left to collect against, and it typically dissolves. For an individual, though, surviving debts are a serious problem, which is why individuals rarely use ABCs. Personal bankruptcy would discharge most of those debts; an ABC will not. CCP Section 1801 does let an individual assignor exempt some personal property, including a limited homestead, one vehicle, household goods, and tools of the trade, but the dollar limits are modest.5California Legislative Information. California Code of Civil Procedure Section 1801
Involuntary Bankruptcy Risk
Creditors unhappy with the ABC can still push the company into federal bankruptcy. Under 11 U.S.C. Section 303, a qualifying group of creditors can file an involuntary petition, and making a general assignment for the benefit of creditors is itself a statutory ground for an involuntary filing within 120 days of the assignment. Creditors might take that route if they suspect the assignee is favoring insiders or want the broader investigative powers of a bankruptcy trustee. That risk is worth weighing with counsel before signing the assignment agreement.
ABC or Bankruptcy
The practical choice usually turns on a handful of trade-offs:
- Speed and cost. ABCs are generally faster and cheaper. No court filings, no disclosure statements, no creditor committees, no contested hearings. Chapter 11 in particular requires filing schedules of assets and liabilities, a disclosure statement, and a plan, all subject to court approval.6United States Courts. Chapter 11 – Bankruptcy Basics
- Choice of decision-maker. The company picks the assignee in an ABC. In Chapter 7, a trustee is appointed or elected and may have no familiarity with the industry.
- Privacy. ABCs are largely private because California doesn’t require court filings. Bankruptcy petitions are public and can attract press coverage that damages customer, vendor, and employee relationships.
- Automatic stay. Bankruptcy has it. An ABC does not.
- Sales free and clear of liens. In bankruptcy, Section 363 lets a trustee sell assets free and clear of liens under certain conditions, even over a secured creditor’s objection. An ABC cannot force that outcome. If a secured lender won’t consent and won’t be paid in full, the deal stalls.
- Executory contracts and leases. A bankruptcy trustee can assume and assign unexpired leases and executory contracts to a buyer even where the contract prohibits assignment. An assignee cannot. Counterparty consent is required, which can complicate or kill a sale.
- Debt discharge. Bankruptcy can discharge remaining obligations. An ABC does not.
Selling the Business Through an ABC
ABCs are often used to sell a distressed business to a buyer who wants the assets without the liabilities. A purchase from the assignee lets the buyer acquire assets free of the assignor’s unsecured debt and reduces exposure to fraudulent transfer and successor-liability claims.
The protection is real but narrower than a bankruptcy sale. No court order blesses the transaction, so a buyer that needs judicial certainty won’t get it. And because the assignee cannot sell free and clear of liens without the secured creditor’s consent, a single uncooperative lienholder can derail the deal. Buyers who need those protections tend to prefer a Section 363 sale, even at the cost of more time and money.
For buyers who can live with the trade-offs, the payoff is speed. A sale can sometimes close on the same day the assignment is signed, preserving going-concern value before customers, employees, and vendors move on. That speed is often the single most valuable feature of the process.