An assignment for the benefit of creditors is a relatively well-established common law tool that is an alternative to bankruptcy. General assignments are structured to save time and expense in concluding the affairs of an insolvent company. Through a general assignment, the insolvent company's assets can be sold quickly and efficiently, and the liquidation proceeds can be distributed to creditors shortly thereafter. The benefit for secured creditors frequently is that the secured creditor is generally relieved of the legal costs and risks associated with the foreclosure and sale of its collateral.
The general rule is that any debtor may make an assignment. This would include any individual, partnership, corporation or limited liability company that owes anything to anyone. Any debtor owning property has the common law right to make an assignment. An assignment is not generally used for individuals because individuals do not receive discharges as a corporation would under Chapter 7 of the U.S. Bankruptcy Code.
In situations where the liquidation value of the assets exceeds the secured creditor's lien, the assignee is not normally required to obtain the consent of the secured creditor prior to taking the assignment. However, since the cooperation of the secured creditor frequently affects the liquidation of assets, in practice assignee's routinely obtain the consent of the secured creditor(s) in advance of the assignment. The acceptance by unsecured creditors is not necessary since under common law the proceedings, an assignment is deemed to benefit all unsecured creditors through equality.
In other common law countries, general assignments usually refer to any general assignment of existing or future book debts by a natural person (including, in some cases, partnerships). A general assignment made by a natural person who is subsequently adjudged bankrupt is void against the trustee in bankruptcy as regards any book debts which have not been paid prior to the presentation of the bankruptcy petition.
The definition of book debts includes "debts which in the ordinary course of business would be entered in a well-kept trade book", future debts and future rents under a hire purchase agreement. Bills of exchange also fall within the definition of book debts, but a bank balance does not.
Under (for example) English law, any general assignment, either absolute or by way of security, of book debts is void unless registered under the Bills of Sale Act 1878. A trustee would not be able to attack an assignment under this section which relates to debts due from specified debtors or debts becoming due under specified contracts or where the debts were assigned as part of a bona fide transfer of a business or the assignment is for the benefit of creditors generally.
University Enhances Emergency Notification System; Electronic Message Boards Now Installed in All General Assignment Classrooms
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