Greetings!
We believe that everyone deserves a fresh start. There are legal solutions available that can help you achieve that fresh start. Through this monthly newsletter, it is our goal to offer you information, as well as solutions, garnered over 35 years of combined legal experience practicing bankruptcy law. We understand the seriousness of choosing to file bankruptcy, and we want to give you power through knowledge to help you make that decision. Please contact us for a no-cost consultation.
Sincerely,
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Is Your Company Drowning in Debt? The Solution Could Be as Easy as ABC.
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A company in financial distress often has several options.
If the company's situation is such that it needs to simply close its doors and shut down, a liquidation can be accomplished through a Chapter 7 bankruptcy, where a trustee sells the company's assets (or abandons them to secured creditors) and generates a recovery for the company's creditors.
If the company is interested in resuming operations and restructuring its debts, it can do so through a Chapter 11 bankruptcy, where the company attempts to reorganize and/or sell certain assets with the approval of the Bankruptcy Court.
Other options include selling the company as a going concern, selling components of the company either as a going concern or through a liquidation, as well as a combination of these and other options.
One strategy that incorporates elements of each of the above options is a state-court Assignment for the Benefit of Creditors (ABC). Oftentimes, an ABC is the most efficient and cost-effective method for accomplishing the goals of a company that is in financial distress.
What is an Assignment for the Benefit of Creditors?
An ABC is a state-court procedure that involves the assignment of all of a company's assets to a third person, named the "assignee", who liquidates the assets, through a variety of methods, in order to generate a recovery for the company's creditors. The company making the assignment is called the "assignor".
An ABC has several similarities to a corporate bankruptcy proceeding. However, one of the major differences between a bankruptcy proceeding and an ABC is that a bankruptcy proceeding is governed by federal bankruptcy law, whereas ABCs are governed by state statutory or common law. In Florida, ABCs are governed by Chapter 727 of the Florida Statutes.
What are some of the advantages of an ABC?
- An ABC is typically faster and less costly than a bankruptcy proceeding, allowing creditors to oftentimes enjoy a larger and more expedited recovery. Why would the owner of a company be interested in how much the creditors receive and how quickly they receive it? The directors of an insolvent company owe a fiduciary duty to the company's creditors, so they have a vested interest in seeing the largest and quickest recovery possible. Furthermore, oftentimes the principal of a company will continue working in the industry and will want to do everything possible to ensure the maintenance of professional relationships.
- Although the "stigma" of bankruptcy is becoming less and less over the years, the principals, officers and directors of some companies may still want to avoid the negative connotations that come with a corporate bankruptcy filing.
- The assignor selects the third-party assignee in an ABC, whereas a Chapter 7 bankruptcy trustee is appointed by the Office of the United States Trustee from an approved panel. This allows the assignor and the assignee to work together on a comprehensive liquidation plan prior to the actual commencement of the ABC proceeding.
- Sometimes filing for a Chapter 11 is difficult because the company does not have sufficient cash flow to operate, or the ability to obtain financing while in a Chapter 11.
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Broward County Bar Association Bench & Bar Convention 2013
Zach Shelomith will be one of the featured speakers.
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Sale of a business as a going concern in an Assignment for the Benefit of Creditors proceeding
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The owner of a business came to Leiderman Shelomith, P.A. seeking a solution to the company's overwhelming debt. The company had guaranteed an obligation of a related entity that owned real property, in the amount of over $1.5 million. The company also had its own secured line of credit of over $500,000.00. In addition, the company owed trade debt of over $300,000.00.
The company's income was simply insufficient to pay all of its creditors in full.
Furthermore, the value of the company's assets was less than $40,000.00, with much of the value derived from accounts receivable, the collectability of which was unknown.
The attorneys at Leiderman Shelomith, P.A. helped the company file an Assignment for the Benefit of Creditors. The company's assets were assigned to a third-party assignee, who had the fiduciary duty to liquidate the assets for the benefit of the company's creditors. The assignee coordinated with the assignor to find a purchaser of the business as a going concern. With the approval of the secured creditors, the assignee sold the business as a going concern, and generated a recovery that far exceeded what the creditors would have received in a bankruptcy proceeding. The owner of the company was able to find employment with the purchaser, remaining in the industry.
The assignee also collected the company's accounts receivable, with the assistance and cooperation of the assignor's owner. The entire process took only four months. The business owner and creditors were all pleased with the quick, efficient and effective result.
If you are interested in learning more about Assignments for the Benefit of Creditors, contact
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- If there is a potential buyer for the business as a going concern readily available, but there is not enough cash available to continue to justify the time and expense of a Chapter 11, an ABC would preserve the going concern value of the business while cutting off creditor claims in a much quicker, simpler and less expensive process than a Chapter 11.
- Furthermore, for an entity interested in purchasing the assets of a distressed company, an ABC provides an added level of protection from fraudulent transfer or other claims, compared to purchasing the assets directly from an insolvent company.
- The liquidation plan in an ABC is oftentimes a collaborative effort, where the assignee can sell the assets of the company by any number of means, including public auction sale, private sale, going-concern sale or bulk sale of certain components of the company. An assignee often enjoys greater flexibility and less oversight with respect to selling assets of the company, as opposed to a Chapter 7 bankruptcy, which results in a greater recovery for the creditors.
- Assignees enjoy a streamlined procedure for operating a business while trying to sell the business as a going concern to a third party, whereas a Chapter 11 may be cost-prohibitive and require debtor-in-possession financing.
- Principals of a company who received repayments from the company in the last year could possibly face more liability in a Chapter 7, as opposed to an ABC.
What are some of the disadvantages of an ABC?
- There is no "automatic stay" in an ABC, so a company that is facing an imminent foreclosure sale or execution of assets by a judgment creditor, and that is interested in remaining in business, would likely require a Chapter 11 bankruptcy filing. However, once a company executes an ABC, other than a consensual lienholder, no creditor can execute, levy or attach any asset in the possession, custody or control of the assignee, which oftentimes serves as similar protection to the bankruptcy "automatic stay".
- Creditors may still attempt to commence an involuntary bankruptcy proceeding against an insolvent company.
Assignments for the Benefit of Creditors law is a highly specialized area of law. The attorneys at Leiderman Shelomith, P.A. have considerable experience representing assignors, assignees, creditors, shareholders and purchasers of assets in ABC proceedings. Our experience can help you navigate through the ABCs of ABCs and come to a successful resolution of your company's financial issues.
If you are interested in learning more about Assignments for the Benefit of Creditors, contact Leiderman Shelomith, P.A. today for a no-cost consultation.
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Meet Ashley Prager Popowitz
Ashley Prager Popowitz started as a law student clerking with Leiderman Shelomith, P.A. in 2006. She became an associate attorney at the firm in 2009. Prior to joining the firm, Ashley obtained a B.A. from the University at Albany, The State University of New York, and a J.D. from the Shepard Broad Law Center at Nova Southeastern University. She handles personal bankruptcy matters (with a focus on Chapter 13 cases), corporate bankruptcy matters, Assignments for the Benefit of Creditors, and bankruptcy litigation.
When you ask Ashley why she became an attorney, her answer goes back a long way. She knew when she was 5 years old that she wanted to be a lawyer.
Ashley enjoys helping people solve their financial problems. She chose to focus on bankruptcy law because she finds it rewarding to see her clients obtain a fresh financial start. Ashley loves receiving holiday cards from her clients telling her how much their life has improved after obtaining relief from their debt.
Ashley's desire to help people is not limited to paying clients. She performs pro bono work through Put Something Back, a joint pro bono project of the Miami-Dade County Bar Association and Eleventh Judicial Circuit, as well as Legal Aid Service of Broward County, Inc.
Ashley grew up in Howard Beach (Queens), New York. She enjoys living in Florida, and recently bought her first home. Her hobbies include basketball, scrapbooking, and photography. She has a large family that she spends time with, including her dog Charlie, a silky terrier.
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Each of the attorneys at Leiderman Shelomith, P.A. participates with Put Something Back, a joint pro bono project of the Miami-Dade County Bar Association and Eleventh Judicial Circuit. Put Something Back recruits, trains, and supports pro bono volunteerism in all aspects of civil law, including bankruptcy.
In mid-July, Jonathan Leiderman was contacted by Put Something Back and asked to handle the case of a Miami-Dade County resident who had lost a great deal of money in a Ponzi scheme. Jonathan jumped at the opportunity to help this man on a pro bono basis, and filed a Chapter 7 bankruptcy at the end of July.
As a result of his unfortunate investment experience, our client only owned $1,425.41 worth of personal property, $1,125.00 of which was his 1996 pickup truck that had 230,000 miles, no radio, and no air conditioning. He had lost everything else he owned. He could not afford to lose his vehicle.
Our client's Meeting of Creditors took place at the beginning of September. We are thrilled to report that the Chapter 7 trustee filed a report of no distribution. Our client gets to keep all of his personal property (including his vehicle), and will be discharging about $85,000.00 of unsecured debt!
The feeling that Jonathan got from helping this pro bono client...priceless.
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About Leiderman Shelomith, P.A.
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Leiderman Shelomith, P.A. was founded by Jonathan Leiderman and Zach Shelomith in 2003. The firm quickly built an excellent reputation across South Florida as a boutique bankruptcy law firm, handling both personal and corporate bankruptcy matters, including Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, as well as state court Assignments for the Benefit of Creditors. Ashley Prager Popowitz joined the firm as an associate attorney in 2009.
The firm's attorneys have been recognized as a South Florida Legal Guide Up and Comer, as a Super Lawyer Rising Star for the State of Florida, and as a Florida Legal Elite Up and Comer. Our attorneys are members of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute and the Bankruptcy Bar Association for the Southern District of Florida, among other organizations. The firm's attorneys are also frequent lecturers at seminars and community programs, speaking about bankruptcy law to attorneys and the general public.
The firm, Mr. Leiderman, and Mr. Shelomith, are AV® Preeminent Rated Attorney's, awarded by LexisNexis® Martindale-Hubbell®, for having obtained the highest possible peer-review rating for their ethical standards and legal ability.
The firm represents debtors, creditors and bankruptcy trustees in all aspects of bankruptcy cases, including litigation and appeals, handling both liquidations and reorganizations. Our office is conveniently located in suburban Fort Lauderdale, Florida, and is easily accessible from anywhere in Miami-Dade, Broward and Palm Beach Counties. We handle bankruptcy debtor cases across the Southern District of Florida, particularly in Broward, Miami-Dade, Palm Beach and Monroe Counties, and other bankruptcy cases throughout the entire State of Florida.
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