The Need For A Uniform ABC Law

By Donald L. Swanson

Here are some reasons why a uniform law on the subject of assignments for benefit of creditors (“ABC”) is needed.

Bankruptcy Analogy

The need for a uniform ABC law is the same as the need behind the “uniform” bankruptcy law requirement in the U.S. Constitution—only, it’s a need on steroids, compared to back then.

Back then, we have only 13 states and limited interstate commerce, with no trains and no interstate highways.  Today, of course, we have lots of those things and a system of commerce that has nothing to do with state lines—nothing whatsoever.

Non-Uniform ABC Laws

On the other hand, we have state ABC laws, today, all over the place: everything from no law whatsoever, to a common law process, to minimal or thoroughgoing statutes.  So, every time an ABC happens, anywhere, it’s a brand-new adventure for nearly everyone when the debtor’s assets span across state lines.

Uniformity is needed to normalize the ABC process and make it more accessible and usable.

Filling a Specific Need

ABCs fill a specific need: one that’s not readily addressed by other processes.  Take for example a startup in an LLC that has some office furniture, computer systems, some intellectual property, an office lease, and a bunch of investors and debt.  The business fails—so, how do we shut it down in an orderly and above-board way.  The answer is this: use an ABC. Here’s why:

• Chapter 7 bankruptcy won’t work—only individuals get a discharge in Chapter 7, and Chapter 7 trustees can’t sell fully encumbered assets;
• Chapter 11 is unwieldy and expensive;
• Subchapter V is an improvement—but it currently has a very-low eligibility threshold, and it is designed to keep businesses going; and
• receivership is, simply, too much expense and trouble with its court supervision and bonding requirements. 

ABC is just right.  That’s the tool that’s needed.  And having a uniform ABC tool across the U.S. would be of immense help!

Conclusion

A uniform law on the subject of assignments for benefit of creditors is needed.

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