A type of insolvency proceeding similar to a Chapter 7 bankruptcy, an assignment for the benefit of creditors (ABC) allows buyers to purchase a leveraged company’s assets as a going concern. Known as turnkey sales, ABC sales offer an alternative to distressed sales in that they are shorter and less expensive than transactions under Section 363 of the Bankruptcy Code, but provide protections not afforded to buyers in out-of-court sales.
An ABC sale allows a distressed company, known as the assignor, to transfer legal control of its assets to a third party, or assignee. Acting as a trustee, the assignee carries out the liquidation of these assets and uses the proceeds to pay off a portion of the assignor’s debts.
Before an ABC sale begins, the assignee and distressed entity identify a buyer, who then negotiates with the assignee to draft a purchase agreement. Since an ABC does not affect secured creditor rights, the buyer also negotiates with the troubled firm’s secured creditors. In some cases, the assignee may seek an appraisal of the assets before finalizing the sale. When purchasing assets in a turnkey sale, buyers do not receive representations or warranties. In most cases, the assignee only guarantees that he or she legally possesses the title for the transferred assets.