There is no single California Assignment for the Benefit of Creditors statute. The process is a common law conveyance in trust, supplemented by a handful of code sections that address specific pieces of the mechanics: Code of Civil Procedure Sections 493.010 through 493.060 and 1800 through 1802, and Civil Code Sections 3439 (the Uniform Voidable Transactions Act) and 3440. The assignment agreement itself fills most of the space the legislature left open.
The Statutes That Actually Govern a California ABC
California is unusual among states. Delaware and Florida have detailed statutory schemes for assignments; California does not. The assignee takes legal title to the debtor’s assets in trust for creditors, and the scope and mechanics of the liquidation come from the assignment agreement and general fiduciary law rather than a step-by-step code.
The statutes that do exist handle discrete problems the common law could not resolve cleanly on its own:
- CCP Sections 493.010 through 493.060 define what qualifies as a general assignment and govern how it interacts with attachment liens and later bankruptcy proceedings.1California Legislative Information. California Code CCP 493.010
- CCP Sections 1800 through 1802 give the assignee preference recovery power and set the mandatory creditor notice and claims deadlines.
- Civil Code Section 3439 and following sections (the Uniform Voidable Transactions Act) let the assignee unwind fraudulent transfers.2California Legislative Information. California Code 3439 – Uniform Voidable Transactions Act
- Civil Code Section 3440 governs when a transfer of personal property is effective against third parties, requiring immediate delivery and an actual change of possession.3California Legislative Information. California Civil Code 3440.2
Because the framework is largely common law, the assignment instrument carries significant weight. It typically spells out the assignee’s powers, the scope of assets transferred, the procedures for sales, and the terms on which the assignee may hire professionals. The flexibility is real, and so is the exposure: no court is automatically watching, so the assignee bears the full burden of defending the process against later challenges.
What Counts as a Valid General Assignment
CCP Section 493.010 sets a three-part test. A general assignment must transfer all of the assignor’s assets that are transferable and not exempt from enforcement of a money judgment. It must benefit all creditors, not just selected ones. And it cannot itself create preferences among creditors, though it may recognize preferences that already exist under other law.1California Legislative Information. California Code CCP 493.010
A cherry-picked assignment that holds back valuable assets does not qualify. Neither does one structured to favor a friendly creditor.
Beyond the statute, the assignment instrument is typically accompanied by a certified list of all assets and known liabilities, signed under penalty of perjury.4California Legislative Information. California Code of Civil Procedure CCP 1802 The assignor must also deliver actual possession and control of the assigned property. Under Civil Code Section 3440, a transfer of personal property that is not accompanied by immediate delivery and an actual change of possession can be treated as void against the transferor’s creditors.3California Legislative Information. California Civil Code 3440.2 The assignee formally accepts the assignment in writing, which starts the clock on the creditor notice requirements.
One point that trips up assignors: insolvency is not listed in Section 493.010 as a requirement for a valid assignment. Companies making assignments are almost always insolvent because solvent companies have better options, but insolvency matters mainly for what the assignee can do afterward. The preference recovery power under CCP Section 1800, for instance, applies only to transfers made while the assignor was insolvent.
Corporate Authorization Under Corporations Code Section 1001
A corporation cannot simply hand its assets to an assignee. An ABC transfers all of the company’s assets, and California’s General Corporation Law treats that as a disposition of substantially all corporate property. Under Corporations Code Section 1001, that kind of transaction requires approval from both the board of directors and the outstanding shareholders, unless it occurs in the ordinary course of business. An ABC is never ordinary course, so shareholder approval is effectively mandatory.
The requirement can create friction. Public companies may struggle to convene a shareholder vote quickly. Closely held companies with feuding owners may deadlock. No shareholder vote is needed to file a federal bankruptcy petition, which is one reason distressed companies with fractured governance sometimes bypass the ABC option.
For LLCs and partnerships, authorization tracks the operating agreement or partnership agreement rather than the Corporations Code. The managing members or general partners need whatever consent those agreements specify.
The 30 and 150-to-180 Day Notice and Claims Timeline
CCP Section 1802 imposes a strict timeline once the assignee accepts the assignment in writing. Within 30 days, the assignee must send written notice of the assignment to every creditor, equity holder, and other party in interest listed on the assignor’s sworn schedule. The notice must include the claims bar date, which must fall between 150 and 180 days after the notice is first sent.4California Legislative Information. California Code of Civil Procedure CCP 1802
Creditors who miss the bar date risk being shut out. Unlike bankruptcy, the ABC process has no statutory safety net for late-filed claims. The assignee reviews all timely claims and can object to those that appear inflated, duplicative, or unsupported. Disputes are usually resolved through negotiation, though either side can seek judicial intervention.
The Assignee’s Statutory Clawback Powers
Two code sections let the assignee reach back and recover value that left the company before the assignment.
Civil Code Section 3439.07 allows the assignee to step into the shoes of the assignor’s creditors and pursue claims under the Uniform Voidable Transactions Act.5California Legislative Information. California Civil Code 3439.07 The statute covers transfers made with the intent to hinder or defraud creditors and transfers made for less than fair value while the assignor was insolvent or became insolvent because of the transfer.
CCP Section 1800 supplies a separate preference power that mirrors the bankruptcy concept. The assignee can recover a transfer that was made to a creditor, on account of a pre-existing debt, while the assignor was insolvent, within 90 days before the assignment, and that enabled the creditor to receive more than others of the same class. Whether Section 1800 is preempted by federal bankruptcy law has been debated in commentary, but the statute remains on the books and California assignees continue to use it.
Where Federal Law Displaces the State Framework
Two federal statutes reach into a California ABC and override the state framework in specific situations. Both matter enough that no analysis of the California scheme is complete without them.
Federal Priority Under 31 U.S.C. Section 3713
When an insolvent person makes a voluntary assignment of property, debts owed to the United States must be paid before other unsecured creditors, including unpaid federal taxes.6Office of the Law Revision Counsel. 31 U.S. Code 3713 – Priority of Government Claims California’s distribution order otherwise follows common law: administrative costs first, then secured creditors up to the value of their collateral, then priority wage claims, then general unsecured creditors pro rata. Federal priority claims slot in ahead of the unsecured tier.
The Section 3713 priority carries personal risk for the assignee. Distributing estate funds to other creditors before paying a known federal debt makes the assignee personally liable for the unpaid government claim, up to the amount distributed. This is the most dangerous trap in an ABC, and experienced assignees resolve federal tax obligations early before making other distributions.
Bankruptcy Turnover Under 11 U.S.C. Section 543
An ABC does not prevent a bankruptcy filing. Any creditor, or the debtor itself, can file a petition after the assignment. The Bankruptcy Code treats an ABC assignee as a “custodian,” a defined term that includes any assignee under a general assignment for the benefit of creditors.7Office of the Law Revision Counsel. 11 U.S. Code 101 – Definitions
Under 11 U.S.C. Section 543, once the assignee learns of a bankruptcy filing, all disbursements must stop. The assignee takes only actions necessary to preserve the property, then turns everything over to the bankruptcy trustee and files an accounting.8Office of the Law Revision Counsel. 11 U.S. Code 543 – Turnover of Property by a Custodian
There is an important exception. If the assignee was appointed or took possession more than 120 days before the bankruptcy petition was filed, the bankruptcy court must excuse the turnover requirement unless compliance is needed to prevent fraud or injustice. Assignees who have been operating that long are also protected from being surcharged for disbursements that complied with applicable law. The 120-day threshold creates a practical incentive to move quickly: the faster the ABC progresses, the less vulnerable it is to a creditor filing an involuntary petition and pulling the assets into federal court.
Limits the Statute Does Not Cure
Two gaps in California’s statutory framework matter enough for anyone comparing an ABC to a bankruptcy filing. There is no automatic stay. Creditors can continue suing the assignor, and nothing in the California statutes prevents a creditor from filing an involuntary bankruptcy petition.
Executory contracts and unexpired leases are the second gap. Unlike a bankruptcy trustee, a California assignee cannot assign these to a buyer without the counterparty’s consent, and contract clauses that allow termination upon insolvency or upon the commencement of an ABC are fully enforceable against the assignee. If a company’s value depends on contracts or leases whose counterparties will not consent to transfer, the California statutory framework provides no fix.
The California ABC works well when a distressed company needs a fast, private wind-down and its value does not depend on transferable contract rights. It works less well when creditor cooperation is uncertain or when key counterparties are likely to refuse consent. The statutes set the outer boundaries; the assignment agreement, and the assignee’s judgment, do most of the rest.