In the United States, a general assignment or an assignment for the benefit of creditors is simply a contract whereby the insolvent entity ("assignor") transfers legal and equitable title, as well as custody and control of its property, to a third party ("assignee") in trust, to apply the proceeds of sale to the assignor's creditors in accord with priorities established by law.
[citation needed] An assignment for the benefit of creditors is a relatively well-established common law tool and is one alternative to a bankruptcy.
An assignment for the benefit of creditors is designed to save time and expense by concluding the affairs of a bankrupt company.
Each state will differ on recording requirements for the assignment for the benefit of creditors contract.
[citation needed] The physical filing of the assignment usually occurs after: the board of directors has spoken with local insolvency counsel; a board of directors authorization of some nature has been enacted; an appropriate assignee chosen; and the contract has been written.
[citation needed] The assignee, once the assignment process is completed, issues a dividend.
The assets sold in an assignment for the benefit of creditor process do not usually require a judge's intervention.
Secured creditor(s) may encourage this type of action to relieve themselves of the legal costs and risks associated with the foreclosure and sale of its collateral.
An assignee in practice may obtain the consent of the secured creditors in advance of the assignment to ensure that the assignee can liquidate the asset or assets in a timely manner without a secured party stopping or holding up the assignment process.
[citation needed] In situations where the liquidation value of the assets is less than a secured creditor's lien, the assignment process can be done, however a vast number of legal questions need to be reconciled before the assignment process can possibly be initiated.
Only the bankrupt company's senior management and/or board of directors have the power to do an assignment.
[citation needed] The dividend is hopefully the payout that the assignee issues, once all creditors' claims have been vetted and all the assets have been sold.
This is the hope the reality varies vastly, depending on the price the assets fetched when sold.
Bills of exchange also fall within the definition of book debts,[3] but a bank balance does not.
[4] Under (for example) English law, any general assignment, either absolute or by way of security, of book debts is void unless registered under the Bills of Sale Act 1878.