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By
Michael G.
Williamson
Maguire, Voorhis & wells, P.A.
Copyright 1993
This article is
used by permission of the
Honorable Michael G. Williamson, United States Bankruptcy Judge
Assignments for the Benefit of
Creditors (“ABC’s” or “Assignments”) under Florida Statute
727 (“Assignment Statute”) are a flexible alternative to
bankruptcy liquidations of corporate debtors.
In an Assignment, the debtor
corporation (“Assignor”) assigns all of its assets to an assignee (“Assignee”)
for the benefit of the Assignor’s creditors. The Assignment is
implemented through the offices of an Assignee chosen because of the
Assignee’s experience in business liquidations. Assignments Invariably
result in a substantially greater distribution to creditors than would be
expected in a Chapter 7 liquidation.
The Assignment Statute sets
forth a uniform procedure for the administration of Insolvent estates
under state law. In virtually all major respects, it closely mirrors the
alternative liquidation provisions of Title 11 of the United States Code (“Bankruptcy
Code”). As with Chapter 7 of the Bankruptcy Code, it is intended to ensure full
reporting to creditors and equal distribution of assets according to
priorities as established under the Assignment Statute.
I. Jurisdiction of
proceedings and venue.
The assignment Instrument is
filed in the office of the clerk of the court in the county of the
Assignor’s chief executive office. Assignment proceedings are subject to
the supervision of the circuit court for the county where the petition is
filed.
II. Commencement of
proceedings.
A. Assignment Instrument.
The Assignment is effected by
the the Assignor’s execution of an irrevocable assignment (“Assignment
Instrument”). The Assignment Instrument must substantially conform with
the form set forth in the Assignment Statute. Under
the terms of the Assignment
Instrument, the Assignor conveys to the Assignee all of the assets of the
Assignor.
B. Power of Attorney.
The Assignment Instrument
contains power of attorney
which gives the Assignor full authority to do all acts which may be
necessary to perform the Assignee’s duties under the Assignment Statute.
C. Schedules of Creditors and
Assets.
Annexed to the Assignment
Instrument are schedules which list all of the Assignor’s known
creditors and all assets of the estate.
D. Assignment Petition.
While the Assignment is effected
by the execution of the Assignment Instrument, the Assignment proceedings
are commenced by the filing of a petition in accordance with the
procedures for filing a complaint as set forth in the Florida Rules of
Civil Procedure (“Assignment Petition”).
E. Assignee’s Bond.
Included in the Assignment
Petition is a request that the court fix the amount of the Assignee’s
bond. The bond must in an amount not less than double the liquidation
value of the assets of the estate.
III. The “Automatic Stay”
under the Assignment Statute.
When a debtor files a bankruptcy
case, any act to enforce a pre-bankruptcy claim is stayed by virtue of the
automatic stay Imposed by Bankruptcy Code § 362. When a debtor files an
assignment, however, acts by creditors against the debtor are not stayed.
Nevertheless, as a practical matter since the debtor has assigned all of
its property to an Assignee, the debtor becomes “judgment proof” since
it has no assets.
Rather than operate to protect
the Debtor from creditor action, the Assignment Statute protects the
Assignee and the estate assets in the hands of the Assignee. Specifically,
§ 727.105 provides that no proceeding may be commenced against the
Assignee and no execution in respect of any judgment may be had against
assets of the assignment estate. There are several important exclusions
from this protection:
A. The stay only protects
personal property. Thus a mortgagee may proceed with a foreclosure against
real property.
B. The stay does not prohibit a
proceeding by a governmental unit to enforce such governmental unit’s
police or regulatory power.
C. The stay also does not
protect the estate assets from a secured creditor enforcing its
rights in collateral under Chapter 679, Florida Statutes.
In light of these exclusions
from the protection otherwise afforded an Assignee in possession of estate
assets, it is incumbent upon the debtor and the Assignee to negotiate
acceptable terms under which the Assignee can liquidate the secured
creditor’s assets.
Often it will be in the interest
of the secured creditor to cooperate in the Assignment process. This
results from the recognition of the Assignee’s superior experience level
in the liquidation of collateral. This is manifested, in part, by the
ability of the Assignee to complete work-in-process and collect accounts
in the ordinary course of the business as the affairs of the Assignor are
being wound down by the Assignee.
IV. Duties of Assignor.
Similar to the duties imposed
upon a debtor under the Bankruptcy Code, the debtor, upon effecting an
Assignment must:
A. Assist the Assignee in the
administration of the estate and comply with all orders of the
court;
B. Deliver to the Assignee all
of the assets of the estate in the Assignor’ s possession or control;
and
C. Submit to a deposition by the
Assignee, which creditors may attend, concerning the acts and financial
condition of the Assignor. This is similar to the examination conducted by
a bankruptcy trustee at the meeting of creditors held pursuant to
Bankruptcy Code § 341. All creditors must receive not less than 10 days’
notice by mail of an examination of the Assignor.
V. Duties of Assignee.
The Assignor’s duties are
essentially those of a Chapter 7 trustee in the process of collecting and
reducing to money the assets of the estate. These duties include:
A. Conduct of Business.
Importantly, the Assignor may conduct the business of the Assignor for
limited periods, if in the best interest of the estate, upon authorization
of the court. Such authority is typically freely given by the circuit
court as necessary to maximize the value of assets of the estate
particularly inventory and work In process.
B. Retention of Professionals.
In performance of these duties, the Assignee is empowered to employ at the
expense of the estate one or more accountants, attorneys, or other
professional persons. The court must approve the reasonableness of the
fees and the reimbursement of expenses for the Assignee and all
professional persons retained by the Assignee.
C. Reporting Requirements.
The Assignee is required to file with the court an interim report of
receipts and disbursements within 6 months after the filing date. After
administering the estate, the Assignee Is required to file with the court
a final report of all receipts and disbursements.
D. Abandonment of Assets.
The Assignee may abandon assets to secured creditors where the Assignee
determines that the estate has no equity in such assets.
E. Noticing Requirements.
Other than the initial publication requirement, the noticing requirements
in the Assignment Statute are similar to those set forth in the Federal
Rules of Bankruptcy Procedure. These notice include:
1. The Assignee is required to
give notice of the Assignment by publication for four consecutive weeks
and to mail the notice to all known creditors within 20 days after filing
of the Assignment Petition. The notice includes such information as the
last day on which a proof of claim may be served upon the Assignee.
2. The Assignee must give the
Assignor and all creditors not less than 20 days’ notice by mail of a
proposed sale of assets of the estate other than in the ordinary course of
business, the compromise Or- settlement of a controversy, and the payment
of fees and expenses to the Assignee and to professional persons employed
by the Assignee. If no objections are timely filed and served, the
Assignee may take such action as described In the notice without further
order of the court.
F. Interim Distributions to
Creditors. Unlike Chapter 7, the Assignee may make interim
distributions to creditors as often as is compatible with the best
interests of the estate.
VI. “Adversary Proceedings”
and “Contested Matters”.
Similar to the procedures
employed in the bankruptcy courts, generally all matters requiring court
authorization under the Assignment Statute are brought by motion. Very
similar to the use of adversary proceedings under Part 7 of the Federal
Rules of Bankruptcy Procedure, there are certain enumerated matters which
must be brought In the Assignment case by way of a supplemental
proceeding. These include:
A. An action by the Assignee to
recover money or other assets of the estate;
B. An action by the Assignee to
determine the validity, priority, or extent of a lien;
C. An action to avoid an
unperfected security interest;
D. An action by the Assignee to
avoid any conveyance or transfer void or voidable under a state law such
as the Uniform Fraudulent Transfer Act.
A supplemental proceeding is
brought under the Florida Rules of Civil Procedure. The clerk of the court
dockets a supplemental proceeding under both the same case number assigned
to the original Assignment Petition and a separate supplemental proceeding
number, and assigns such supplemental proceeding to the same division and
judge assigned to the main case. All pleadings filed in the supplemental
proceeding contain a caption similar to the caption used In adversary
proceedings in bankruptcy court.
VII. Claims Administration.
A. Filing Claims. Claims
are filed by delivering a proof of claim to the Assignee within 120 days
from the filing date. A form similar to the form used in bankruptcy court
is sufficient. A proof of claim thus delivered constitutes prima fade
evidence of the validity and amount of the claim.
B. Objections to claims.
The Assignee is charged with the
responsibility of reviewing and, where appropriate, objecting to claims. A
copy of the objection, together with notice of hearing thereon, must be
mailed to the creditor at least 20 days prior to the hearing. All claims
properly f lied with the Assignee and not disallowed by the court are
entitled to distribution from the estate.
VIII. Distribution to
Creditors.
Allowed claims receive
distribution under the Assignment Statute in the following order of
priority and, with the exception of claims of secured creditors, on a pro
rata basis:
A. Secured Creditors.
Creditors with valid liens on assets of the estate receive the proceeds
from the disposition of their collateral, less the expenses of preserving
or disposing of such collateral to
the extent of any benefit to such creditors.
B. Administrative Expenses.
Expenses incurred during the administratiOn of the estate including
allowed fees and reimbursements of all expenses of the Assignee and
professional persons employed by the Assignee.
C. Tax Claims. Unsecured
claims of governmental units f or taxes which accrued prior to the filing
date.
D. Wage Claims. Claims
for wages, salaries, or commissions, including vacation, severance, and
sick leave pay, or contributions to an employee benefit plan earned by the
individual within 90 days of the filing date or the cessation of the
Assignor’s business, whichever occurs first, but only to the extent of $2,000.
E. Deposit Claims.
Allowed unsecured claims, to the extent of $900 for each individual,
arising from the deposit with the Assignor before the filing date of money
in connection with the purchase, lease, or rental of property or the
purchase of services for personal, family, or household use by such
Individuals that were not delivered or provided.
F. Unsecured Claims.
Unsecured claims are paid pro rata from any remaining estate
G. Debtor. If all of the
above classes have been paid in full, any residue is paid to the
Assignor.
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