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An assignment for the benefit of creditors ("Assignment" or "ABC") is a well-established state court-administered liquidation proceeding. The Deed of Assignment effectively transfers all the assets of the Assignor to the Assignee. An alternative to bankruptcy, an Assignment is somewhat similar to a Chapter 7 bankruptcy whereby an individual, corporation, company, or partnership (the "Assignor") can liquidate its assets in an orderly fashion to equally pay its creditors' claims. As explained by the Appellate Division of the New Jersey Superior Court, the Assignee "stands in the shoes" of the Assignor, and has broad powers under the Statute: The [S]tatute's purpose is to treat all creditors equally and avoid any disproportionate payments to a favored creditor. There is no definition of “preference” in the assignment for the benefit of creditors statute.
Pursuant to 2A:19-13, the assignee [M]ay sue for and recover in his own name everything belonging or appertaining to the estate.
The second role of the assignee is to represent all of the assignor’s creditors.
The answer to this question lies in the second role of the assignee.
In layman’s terms, an “assignment for the benefit of creditors” is when a company, usually suffering from financial difficulties, can sell off its assets to pay its creditors.
It functions much like a bankruptcy proceeding, except it is based upon state law.