Common Law ABCs v. Receiverships

By: Donald L Swanson

Assignments for benefit of creditors (“ABCs”) and receiverships have been utilized effectively for centuries under the common law, side-by-side as separate and distinct and complementary remedies for liquidating assets.

Differences

Differences between the two are that:

• receiverships are a court-supervised process initiated by a creditor to dispossess the debtor and liquidate debtor’s assets; while
• ABCs are an out-of-court process under the law of trusts (debtor is trustor, assignee is trustee with fiduciary duties to creditors as beneficiaries) initiated by the debtor to liquidate assets with efficiency and credibility.

Flourishing v. Rarely Used

Today:

• states like Illinois and California have maintained the common law of ABCs, and ABCs are flourishing there; and
• other states have codified their ABC laws to look more like receiverships, with court supervision and bonding requirements—many of which statutes are rarely used.

Merging

Some states have even merged their ABCs into their receivership statutes—and still call it an ABC law.  Such a merger makes their ABC and receivership processes indistinguishable, so that their ABCs bear no resemblance to the common law of ABCs and are nothing more than a voluntary receivership.

Using the name “ABC” for a statute that merges ABCs into receiverships is a misnomer and false advertising.  It’s like holding a football and calling it a basketball—we can do such a thing, but don’t try to dribble.

In fact, when a state merges its ABC law into its receivership statute, it is accomplishing one policy goal:

• i.e., prohibiting ABCs under the common law from ever being used in that state—nothing more and nothing less.

Why would any state want to do such a thing? 

New Uniform Assignment for Benefit of Creditors Act

Every state should want to have a law that has worked successfully for centuries—including at the present time!

• And that’s exactly what the new Uniform Assignment for Benefit of Creditors Act does—it codifies the common law of ABCs, along with updates to address today’s economic realities.

Conclusion

Every state should enact the new Uniform Assignment for Benefit of Creditors Act as soon as possible—even if a state has already enacted a voluntary receivership statute.

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