Questions About General Assignments

Q. What are the assignee’s fee for administering a General Assignment?

A. The compensation paid to the assignee can be negotiated between the assignor and assignee depending on the size of the case, and is always spelled out in the contract of assignment. The assignee typically collects its fee from the dollars it receives from the liquidation of the assets. Since the assignee’s fee is a percentage of the dollars it collects from the liquidation assets, the assignee has an incentive to maximize the recovery for all creditors.

Q. What if lawsuits and attachment proceedings are pending against the debtor. Can the debtor still make a General Assignment for the benefit of its creditors?

A. If an assignment is created within 90 days of a creditor being awarded a Temporary Protective Order or Writ of Attachment, the lien created by the attachment is terminated. A judgment lien obtained before the assignment may be a lien on assigned property but may be subject to a preference attack by the assignee if created within 90 days of the General Assignment. A judgment lien obtained after the assignment creates no lien on the debtor’s assets since title to the assets already passed to the assignee. Prior valid liens on mortgages, personal or leased property are unaffected by the General Assignment.

Q. How are funds distributed to creditors in a General Assignment?

A. Proceeds from sale are generally distributed first to the secured creditor. Priority wages are paid next. The cost and expenses of administering the assignment, including the assignee’s fees and any legal expenses are paid next. Thereafter, distribution is generally made in accord with priorities established by law and after the Bar Date to file claims has passed.

Q. Why is liquidation of a distressed company less expensive and quicker under a General Assignment, as opposed to bankruptcy?

A. The significant difference is the assignee’s ability to avoid following all of the administrative procedures that governs bankruptcy court proceedings. Upon filing a bankruptcy proceeding under Chapter 7 of the Bankruptcy Code, it takes weeks of processing paperwork before a Bankruptcy Trustee can begin to administer the case. By the time a Bankruptcy Trustee takes possession, the accounts receivable have deteriorated significantly and in some cases, the debtor’s assets are either stolen or vandalized. In attempting to liquidate assets, because Chapter 7 trustee’s must seek court approval for each transaction they undertake, Chapter 7 Trustee’s sales often result in lower recoveries due to the time delay required in following the bankruptcy court approval process. These procedures are required to conform to the adequate notice requirements of the bankruptcy court that often fail to realize the maximum recovery for the assets being sold. Conversely, a General Assignment lessens the time required to sell assets, increases the liquidation options, keeps the cost substantially lower, resulting in a greater return for creditors.

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