General assignment is a type of lien that allows a creditor to take control of a debtor's property, including personal and real property, to satisfy a debt. It's a powerful tool, but one that comes with significant risks and fees.
There are two main types of general assignment: voluntary and involuntary. A voluntary general assignment occurs when a debtor agrees to assign their property to a creditor, while an involuntary general assignment happens when a court orders a debtor to assign their property to a creditor. In both cases, the creditor gains control over the debtor's property.
The fees associated with general assignment can be steep, with costs ranging from 5% to 15% of the debt amount, depending on the jurisdiction and the specific circumstances. These fees are usually paid by the debtor, adding to the overall burden of the debt.
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Assignment Process
A General Assignment for the Benefit of Creditors is a voluntary and "arms-length" transaction that provides a speedy, orderly, and equitable liquidation of the firm's assets and subsequent distribution to its creditors.
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This process is typically handled by a local or regional bankruptcy attorney in the specific state, as it falls within the legal niche of bankruptcy.
The assignor turns over its assets to a third party, known as the assignee, who is responsible for liquidating these assets and settling with creditors.
The assignee marshals the assets of the business, liquidating physical assets such as machinery, equipment, and furniture, and collects accounts receivable.
A pro-rata distribution is then made to unsecured creditors of any or all monies remaining after all priority parties have had their interest satisfied.
This process is similar to a Chapter 7 liquidation process but is far quicker and much less expensive, generally resulting in a larger distribution to all creditors.
Non-legal staff familiar with bankruptcy and the assignment process can also affect the speed and validity of the process, but a local or regional bankruptcy attorney is usually best equipped to handle the legal end of the process.
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Assignment Types and Fees
In a general assignment, there are three types of assignments: general, partial, and special.
A general assignment involves transferring all of a debtor's property for the benefit of all their creditors.
A partial assignment transfers only part of a debtor's property to benefit all creditors, while a special assignment transfers property to benefit designated creditors only.
In some jurisdictions, a partial assignment is considered a fraudulent conveyance because it hinders creditors from receiving payment if they must seek payment from the debtor after being referred to the assignee.
The fees for an assignment are determined before documents are signed and become part of the General Assignment agreement.
Types
There are three types of assignments: general, partial, and special assignments. A general assignment involves the transfer of all a debtor's property for the benefit of all their creditors.
A partial assignment is one where only part of the debtor's property is transferred to benefit all creditors. This type of assignment can be considered fraudulent in some jurisdictions.
A special assignment is when property is assigned to benefit only designated creditors. This is different from agency arrangements, pledges, or mortgages.
Assignments result in the property being beyond the control of the debtor. This is a key aspect of assignments that sets them apart from other arrangements.
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Fees
In many cases, there may be an Assessment Fee for the review of all pertinent documents to determine the business viability as a candidate for a general assignment.
The fee amount is determined before the documents are signed and become part of the General Assignment agreement.
Unlike other processes, no upfront fees are required for a general assignment, which can be a significant relief for businesses.
The fees for the assignee are paid as an administrative expense from the proceeds recovered.
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Assignment Benefits and Risks
A General Assignment is a flexible and cost-effective way to liquidate assets, resulting in greater returns for creditors. This is because it avoids the administrative procedures that govern bankruptcy, reducing the cost of liquidation and the time necessary to sell assets.
In fact, a General Assignment can save creditors a significant amount of time, allowing them to recover their investments faster. This is a major advantage for creditors who are eager to recoup their losses.
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One of the key benefits of a General Assignment is that it does not require court adjudication or consent in many states, including California. This makes it a more streamlined process than traditional bankruptcy procedures.
A General Assignment also has the advantage of not carrying the stigma of bankruptcy, which can be a major concern for company principals who may be personally liable for the company's debts. This can help to preserve their personal credit and reputation.
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