A California assignment for the benefit of creditors, often shortened to ABC, is a state-law alternative to bankruptcy that lets an insolvent business transfer all of its assets to a neutral third party, called an assignee, who sells them and distributes the proceeds to creditors. It is governed by the California Code of Civil Procedure, runs without court supervision, and usually costs less and finishes faster than a Chapter 7 or Chapter 11 case. The trade-offs are real: there is no automatic stay to stop creditor lawsuits, and any debt that isn’t paid in full through the liquidation survives.
How a California ABC Works
An ABC starts with a decision by the company’s board to assign all of its transferable, non-exempt assets to an assignee of its choosing. Under CCP Section 493.010, a valid general assignment must cover all assets that could be reached by a money judgment, must benefit all creditors equally, and cannot itself create a new preference, though it may recognize preferences that already exist under law.1California Legislative Information. California Code of Civil Procedure 493.010 (2025)
The deal is memorialized in a written assignment agreement between the company (the assignor) and the assignee. Once the assignee accepts in writing, they have 30 days to send written notice to all known creditors.2California Legislative Information. California Code of Civil Procedure CCP 1802 From that point, the assignee controls the assets, decides how to liquidate them, collects claims, and pays creditors from the proceeds. Most cases wrap up in roughly 12 months, though complex liquidations can run longer.
No petition is filed with any court. No judge supervises the sale. No hearing approves the distribution. That absence of judicial oversight is the main reason an ABC is faster and cheaper than bankruptcy, and it’s also why some buyers and creditors prefer bankruptcy’s paper trail.
Picking the Assignee
In an ABC, the assignor chooses the assignee. That is a meaningful advantage over Chapter 7, where a trustee is appointed by the U.S. Trustee’s office or elected by creditors and may have no familiarity with the company’s industry. A chosen assignee can bring industry knowledge, buyer contacts, and experience selling similar businesses as going concerns.
Once in place, the assignee owes fiduciary duties to all creditors of the estate, not to the company that selected them and not to any one creditor. Their job is to maximize total recovery. In practice, that means deciding whether to sell the business as a going concern, auction assets piecemeal, or negotiate directly with specific parties, and running the business through the wind-down if operations continue.
California gives the assignee some runway to keep operating from the company’s leased space. Under Civil Code Section 1954.1, the assignee may occupy and operate from the leased premises for up to 90 days after the assignment, even if the assignment would otherwise trigger a lease default. That window is often what makes a going-concern sale possible.
How Creditors Get Paid
After the notice goes out, creditors file claims with the assignee. The assignee eventually sets a bar date, and claims filed late may be reduced or paid nothing.
Distribution follows a fixed order. Secured creditors 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. Any surplus, which is rare, goes back to the assignor or its equity holders.
The assignee also has a clawback tool. Under CCP Section 1800, the assignee can recover a payment made to a creditor on account of a pre-existing debt if the company was insolvent when the payment was made, the payment occurred within 90 days before the assignment, and it allowed that creditor to receive more than other creditors of the same class will get through the ABC. For insider payments, meaning payments to officers, directors, or their family members, the lookback extends to one year, and the transfer is recoverable if the insider had reasonable cause to believe the company was insolvent.3California Legislative Information. California Code of Civil Procedure Section 1800
If your company paid down a large vendor balance or repaid an insider loan in the months before the assignment, expect the assignee to look at those transactions closely.
No Automatic Stay
This is where an ABC differs most sharply from bankruptcy. A bankruptcy filing triggers the automatic stay under Section 362, which immediately halts lawsuits, foreclosures, garnishments, and repossessions.4Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay California’s ABC statute has no equivalent.
Creditors are free to sue the assignor, enforce judgments, and pursue collection during the ABC. Most don’t, because fighting over the assets is expensive and the ABC will likely pay them faster than litigation. But cooperation is voluntary. If a hostile creditor files suit, the assignee has no statutory mechanism to stop them. When pending litigation or an aggressive creditor is the real threat to the company’s value, bankruptcy’s stay may be the better tool.
No Debt Discharge
The second major limitation is that an ABC does not wipe out remaining debts. Once the assignee distributes the proceeds and closes the estate, any unpaid balances still exist as valid claims against the assignor.
For a corporation or LLC, that limitation usually doesn’t matter in practice. The entity has already transferred everything to the assignee, so after the ABC it’s a shell with nothing left to collect against. The company typically dissolves. For an individual, the result is very different: personal debts survive, and the person walks out of the ABC still owing them. That is why individuals rarely use ABCs, and why personal bankruptcy, which can actually discharge those debts, is almost always the better fit for a person.
Risk of Involuntary Bankruptcy
An ABC does not insulate the company from federal bankruptcy. Under 11 U.S.C. Section 303, a qualifying group of creditors can file an involuntary bankruptcy petition against the company, and making a general assignment is itself one of the statutory grounds for such a petition. Creditors have 120 days from the assignment to file.
Creditors may push for involuntary bankruptcy if they suspect insider favoritism, want a trustee’s broader investigative powers, or simply want judicial oversight of the liquidation. Any company considering an ABC should weigh that risk with counsel before signing the assignment.
ABC Compared to Bankruptcy
The practical trade-offs between an ABC and a bankruptcy liquidation come down to a few points:
- Speed and cost. An ABC avoids court filings, disclosure statements, creditor committees, and judicial hearings. A Chapter 11 case requires schedules of assets and liabilities, a disclosure statement, and a plan, all subject to court approval.5United States Courts. Chapter 11 – Bankruptcy Basics
- Choice of liquidator. The company picks the assignee in an ABC. A Chapter 7 trustee is appointed or elected.
- Privacy. ABCs produce no public court docket. Bankruptcy filings are public and often draw press coverage.
- Automatic stay. Bankruptcy has one; an ABC does not.
- Sale free and clear of liens. A bankruptcy trustee can use Section 363 to sell assets free and clear over a secured creditor’s objection in some circumstances. An assignee cannot. If a secured creditor won’t consent and won’t be paid in full, the ABC has no mechanism to force the sale.
- Executory contracts and leases. A bankruptcy trustee can assume and assign contracts and leases even when the contract prohibits assignment. An ABC assignee needs the counterparty’s consent.
- Debt discharge. Bankruptcy can discharge remaining debts. An ABC does not.
When an ABC Makes Sense
An ABC tends to fit when the company’s board has accepted that the business will be liquidated, the creditor group is cooperative or indifferent rather than adversarial, there are no major contracts or leases that need to be forced onto a buyer over the counterparty’s objection, and secured creditors are either going to be paid in full from the sale or have agreed to release their liens. In those conditions, the speed, lower cost, privacy, and ability to choose an experienced assignee usually outweigh what bankruptcy would add.
It fits less well when a hostile creditor is actively litigating or threatening to, when the company needs to sell with the certainty of a court order approving the sale, when a secured creditor is dug in and refuses to release liens, or when key leases and contracts can’t be transferred without consent the counterparties won’t give. Those are the situations in which the structure of a bankruptcy case, slower and more expensive though it is, buys protections an ABC simply cannot provide.