California Assignment for the Benefit of Creditors Statute

There is no single California Assignment for the Benefit of Creditors statute. The process is a common law conveyance in trust, supplemented by Code of Civil Procedure sections 493.010 and 1800 through 1802, which define a valid general assignment and set the assignee’s preference-recovery and creditor-notice duties, and by Civil Code sections 3439 and 3440, which supply the voidable transactions and delivery-of-possession rules. The assignment agreement itself fills in the rest.

What Counts as a Valid General Assignment

Code of Civil Procedure Section 493.010 sets three conditions. The assignment must transfer all of the assignor’s assets that are transferable and not exempt from enforcement of a money judgment; it must be for the benefit of 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.¹ A cherry-picked assignment that holds back valuable property fails this test and is not a general assignment at all.

The assignment is typically paired with a certified schedule of all assets and all known liabilities, signed under penalty of perjury.² Delivery matters as much as paperwork. Under Civil Code Section 3440.2, a transfer of personal property that is not accompanied by immediate delivery and an actual change of possession can be void against the transferor’s creditors.³ The assignee must formally accept the assignment in writing, which starts the notice clock discussed below.

Insolvency is not on the Section 493.010 list. A solvent company could technically make an assignment, though in practice they do not. Insolvency does matter later: the preference-recovery power under CCP Section 1800 only reaches transfers made while the assignor was insolvent.

Corporate Authorization Before the Assignment

A California corporation cannot execute an assignment on the signature of an officer alone. Because an ABC transfers all corporate assets, Corporations Code Section 1001 treats it as a disposition of substantially all property, which requires approval of both the board of directors and the outstanding shareholders unless the transfer occurs in the ordinary course of business. An ABC is never ordinary course, so shareholder approval is effectively mandatory.

This creates practical pressure. Public companies may struggle to convene a shareholder vote quickly, and closely held companies with feuding owners may deadlock. A federal bankruptcy petition carries no equivalent shareholder-vote requirement, which is one reason some distressed companies with fractured governance bypass the ABC route entirely.

For LLCs and partnerships, authorization follows the operating or partnership agreement. The managing members or general partners generally need whatever consent those documents specify.

The Assignee’s Statutory Powers

Common law gives the assignee legal title and broad liquidation discretion. Two statutes give specific recovery tools.

Preference Recovery Under CCP Section 1800

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 other creditors of the same class. The structure mirrors federal bankruptcy’s preference concept. Whether CCP Section 1800 is preempted by federal bankruptcy law has been debated in legal commentary, but the statute remains on the books and California assignees continue to use it.

Voidable Transactions Under Civil Code Section 3439

Civil Code Section 3439.07 lets the assignee step into the shoes of the assignor’s creditors and pursue claims under the Uniform Voidable Transactions Act.⁴ That reaches transfers made with intent to hinder or defraud creditors and transfers made for less than fair value while the assignor was insolvent or became insolvent as a result.⁵

Creditor Notice and the Claims Bar Date

Once the assignee accepts in writing, CCP Section 1802 imposes a strict timeline. Within 30 days, the assignee must send written notice to every creditor, equity holder, and other party in interest on the sworn schedule. The notice must state a claims bar date, and that date must fall between 150 and 180 days after the notice is first sent.²

Creditors who miss the bar date risk being shut out entirely. Unlike federal bankruptcy, where late claims can sometimes still be allowed, the ABC statutes provide no safety net for tardy creditors. The assignee reviews timely claims and can object to those that appear inflated, duplicative, or unsupported. Disputed claims are typically resolved through negotiation, though either side can seek judicial intervention.

How Proceeds Are Distributed

California has no detailed statutory distribution scheme for ABCs comparable to the Chapter 7 waterfall in the Bankruptcy Code. The order of payment follows common law priority principles together with the federal priority statute:

Administrative costs come off the top: the assignee’s fees and the fees of attorneys, accountants, and auctioneers hired to run the liquidation.
Secured creditors receive proceeds from their collateral up to the value of their secured claim. Any shortfall becomes an unsecured claim.
Federal government claims take priority over other unsecured creditors under 31 U.S.C. § 3713, which applies by its terms to a voluntary assignment of property by an insolvent person. Unpaid federal taxes are the usual example.⁶
Priority wage claims follow, with scope and amount governed by applicable state and federal standards. California Labor Code Section 201 also requires all earned and unpaid wages to be paid immediately upon discharge, which drives assignees to treat wages as an urgent obligation.⁷
General unsecured creditors share proportionally in whatever remains.

The federal priority deserves emphasis because it carries personal risk. If the assignee distributes estate funds to other creditors before paying a known federal debt, the assignee becomes personally liable for the unpaid government claim up to the amount distributed.⁶ Experienced assignees resolve federal tax obligations early, before any other distribution.

How the Statutes Interact With Federal Bankruptcy

An ABC runs outside the federal courts, but it does not block a bankruptcy filing. Any creditor, or the debtor itself, can file a bankruptcy petition after the assignment, and when that happens the ABC can be halted. The Bankruptcy Code treats a California assignee as a “custodian,” a defined term that includes any assignee under a general assignment for the benefit of creditors.⁸

Under 11 U.S.C. § 543, once the assignee learns a bankruptcy case has been filed, the assignee must stop disbursements, take only actions necessary to preserve the property, turn over all of the debtor’s property to the bankruptcy trustee, and file an accounting of everything that passed through the estate.⁹

There is a 120-day safe harbor. 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.⁹ Assignees past the 120-day mark are also protected from being surcharged for disbursements that complied with applicable law. The practical consequence is a strong incentive to move quickly in the early months of a case.

What the ABC Statutes Do Not Provide

The California statutes are narrower than federal bankruptcy, and the gaps matter.

There is no automatic stay. Nothing in CCP Sections 493.010, 1800, or 1802 halts collection activity, pending lawsuits, or enforcement of judgments after the assignment. Creditors can continue suing the assignor, and a creditor dissatisfied with the ABC can file an involuntary bankruptcy petition to pull the assets into federal court.

The assignee cannot assign executory contracts or unexpired leases to a buyer without the counterparty’s consent. Clauses that permit termination on insolvency or on commencement of an ABC are fully enforceable against the assignee. A bankruptcy trustee has broader statutory tools on both points; a California assignee does not.

And the assignment itself cannot create preferences. CCP Section 493.010 permits the assignment to recognize preferences that creditors already hold under other law, but it does not let the assignor use the assignment document to prefer one unsecured creditor over another.¹

Because the statutory framework is thin, the assignment agreement does heavy work. It typically spells out the assignee’s specific powers, the scope of assets transferred, the procedures for conducting sales, and the terms under which the assignee may hire professionals. The flexibility is the ABC’s main advantage over Chapter 7, and also its main source of exposure: without a court automatically supervising the process, the assignee bears the full burden of defending every decision against later challenge.

1
California Legislative Information. California Code CCP 493.010
2
California Legislative Information. California Code of Civil Procedure CCP 1802
3
California Legislative Information. California Civil Code 3440.2
4
California Legislative Information. California Civil Code 3439.07
5
California Legislative Information. California Code 3439 – Uniform Voidable Transactions Act
6
Office of the Law Revision Counsel. 31 U.S. Code 3713 – Priority of Government Claims
7
California Legislative Information. California Labor Code 201
8
Office of the Law Revision Counsel. 11 U.S. Code 101 – Definitions
9
Office of the Law Revision Counsel. 11 U.S. Code 543 – Turnover of Property by a Custodian