Common Features of Chapter 7 Cases and Assignments for the Benefit of Creditors

I recently wrote an introductory article about assignments for the benefit of creditors (ABCs) and contrasted them to Chapter 7 bankruptcy proceedings.

Both proceedings have much in common.

First, both are liquidating proceedings, rather than proceedings by which an entity can reorganize and continue operating.

Second, each provides the opportunity for the fiduciary and creditors to question the assignor or debtor at an examination or 341 meeting, respectively.

Third, fiduciaries in both proceedings can retain various professionals to assist in administering the estate. These may include general counsel, financial advisors, brokers and/auctioneers.

Fourth, the fiduciaries are each empowered to liquidate assets, collect debts owed to the assigner/debtor, and pursue causes of action to recover money or property.

Fifth, in each proceeding creditors are given notice of the deadline by which to submit a claim relating to the debt owed to it. The failure to timely submit a claim could be fatal for certain classes of creditors.

Sixth, the terms of engagement for the professionals employed by the fiduciary and the fiduciary’s own compensation are subject to court approval.

Seventh, the award of compensation to the fiduciary and their professionals is also subject to notice and court approval.

Seventh, fiduciary compensation is typically calculated as a commission based on a percentage of the assets marshaled in the estate. In an ABC, the assignee obtains court approval of the commission rate. Chapter 7 Trustee compensation is fixed by Section 326 of the Bankruptcy Code.

Eighth, in both proceedings the fiduciary must file a motion seeking to close the case, administer the assets, absurd records, and approve the distribution of estate property.

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