---
title: "What Is Assignment for Benefit of Creditors (ABC)?"
term: "Assignment for Benefit of Creditors (ABC)"
description: "An ABC is a state-law wind-down where an insolvent company voluntarily transfers its assets to an independent assignee who liquidates them and distributes proceeds to creditors. It is an alternative to formal bankruptcy that can be faster and less public for some startups."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/assignment-for-benefit-of-creditors-abc
---

# What Is Assignment for Benefit of Creditors (ABC)?

> An ABC is a state-law wind-down where an insolvent company voluntarily transfers its assets to an independent assignee who liquidates them and distributes proceeds to creditors. It is an alternative to formal bankruptcy that can be faster and less public for some startups.

An **Assignment for Benefit of Creditors (ABC)** is a voluntary liquidation process under state law. The distressed company assigns all assets to an independent assignee, who sells them and pays creditors from the proceeds under statutory priority rules.

## How it works

The board resolves that the company cannot meet obligations and approves the assignment. Assets — equipment, IP, receivables — transfer to the assignee, who runs a sale process, often similar to a quick [/glossary/asset-sale](/glossary/asset-sale). Secured lenders typically recover first, then general unsecured creditors (vendors, landlords with claims). Equity and preferred shareholders sit last and usually receive zero.

ABCs are common in California and other states with mature ABC statutes. They can be less expensive and faster than Chapter 11 for companies with no going-concern value. They are not available everywhere, and some counterparties prefer the automatic stay of federal bankruptcy.

Directors must still act with care; fraudulent transfer and personal guarantee exposure remain. Employees owe final wages and WARN Act considerations depending on headcount and state.

## Why it matters

- **Founders:** Work with counsel early when cash runway hits zero with no sale path. An orderly ABC preserves relationships better than ghosting vendors, but personal guarantees may still bite.
- **Investors:** Mark the holding to zero after assignment. LP reporting requires documentation of the wind-down and any residual distributions.
- **Operators:** Secure and document IP assignments and customer data handling before assignee sale — buyers pay for clean transfer packages.

## Common mistake

Assuming preferred stock guarantees recovery in an ABC. Liquidation preference applies only to remaining proceeds after creditors; most failed startups have insufficient asset value to reach equity.

## Related ideas

[/glossary/asset-sale](/glossary/asset-sale), Chapter 7 bankruptcy, wind-down, and secured creditor priority.

## FAQ

### What is an ABC in simple terms?

An Assignment for Benefit of Creditors is a structured shutdown where the company hands its assets to a third-party assignee who sells them and pays creditors according to priority rules. It avoids a full federal bankruptcy case in some situations.

### Why does an ABC matter?

Startups that cannot raise or sell often choose ABCs in California and other ABC-friendly states to wind down quickly. Equity holders usually receive nothing after secured and unsecured creditors. Investors need clean wind-down documentation for fund write-offs.


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Source: https://venturecapitaltracker.com/glossary/assignment-for-benefit-of-creditors-abc