At its recently concluded annual meeting, the Uniform Law Commission (ULC) voted final approval of the Uniform Assignment for Benefit of Creditors Act (“Act”).
Set forth below is a short discussion of “ABCs” as they currently exist, the ULC’s effort to bring uniformity to ABCs going forward and next steps to reform the law governing this common non-bankruptcy alternative for dealing with distressed companies.
ABCs
In the United States, there are several types of legal proceedings that can be invoked to address an insolvency situation. The most well-known procedure is federal bankruptcy relief. Federal bankruptcy proceedings are governed by the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the authority of the presiding United States Bankruptcy Court with jurisdiction.
An ABC, in contrast, is not a federal bankruptcy case. Rather, an ABC is a voluntary state law liquidation process. In some states an ABC proceeding is “judicial” (supervised by a state court) while in other states an ABC proceeding is non-judicial (lacking any court supervision). Whether judicial or nonjudicial the basic mechanism of an ABC is the same: the distressed company (the “assignor”) voluntarily assigns its assets to a third-party fiduciary (the “assignee”) who agrees to liquidate the assets and distribute the proceeds to the assignor’s creditors holding valid, allowed claims.
An ABC proceeding can often be quicker and less expensive than a federal bankruptcy case and thus return higher value to unsecured creditors. However, because the laws governing ABCs differ from state to state, a lack of clarity or transparency can needlessly impact the efficiency of the process.
ULC Drafting Committee
The ULC is a non-profit, unincorporated association comprised of commissioners from each of the 50 states as well as the District of Columbia, the Commonwealth of Puerto Rico and the US Virgin Islands. The ULC, which was established in 1892, seeks to provide “states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law” as stated on its site. The ULC is most well-known for its work drafting and updating the Uniform Commercial Code. The organization is responsible also for numerous other uniform acts that are brought forth to individual states for consideration and possible enactment.
In 2023, the ULC formed a drafting committee to consider various issues concerning state laws governing ABC procedures. These issues included:
- The interaction of state ABC law with bankruptcy and other state and federal law;
- Choice of law rules, including whether an ABC should be treated as a security interest;
- Court involvement in the ABC process;
- Transparency, due process, conflicts of interest and adequate notice procedures, particularly with respect to the duties of assignees.
After holding its first meeting in the fall of 2023, the drafting committee met at regular intervals and continued work on the Act. The ULC website contains (at this link) materials related to each drafting committee meeting enabling transparency into how the Act evolved over the two-year drafting process.
As noted above, the drafting committee presented its final report to the ULC annual meeting in July 2025. The prefatory note to the Act explains its purpose:
“It lays out the duties and powers of the assignor and assignee, a process for allowing and disputing claims, and limitations on liability for the assignor and assignee. It also addresses interstate assignments and court involvement. Importantly, although the act neither mandates nor specifically contemplates court involvement, it does not preclude court involvement, and thus may be attractive to states, regardless of any state’s current usage of court-supervised assignments. The act is thus intended to provide greater clarity and consistency to the assignment process across the fifty states, in the hope that assignments will, where appropriate, become a robust tool for debtors throughout the country.”
Next Steps
The ULC’s approval of the Act is a significant milestone – representing an important step in the effort to modernize and streamline the law governing ABCs. The next step is for individual commissioners to work towards enactment of the Act in their respective jurisdictions. The ULC tracks the progress of enactment on its website at this link. Even if not formally adopted by particular states, it is likely that the Act will serve as a useful reference point for assignors, assignees and creditors dealing with an ABC process – and help bring greater transparency and clarity to this tool for maximizing value in distressed situations.
