USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
ABCs The transfer of assets by the assignor to the assignee is subject to all creditor claims and pre-existing valid liens and security interests encumbering such assets. The assignee acquires all right, title and interest in the assigned assets for the purposes of liquidating the assets as a fiduciary to all unsecured creditors. The assignee makes creditor distributions based on state law priorities. An ABC does not result in an automatic stay of creditor actions. Dissolutions State law dissolutions permit a business entity to wind up its affairs, liquidate or dispose of its assets, pay its liabilities and claims, and conclude its existence. Dis - solution and wind-up procedures vary from state to state and for differing forms of business entities. There is no stay of legal proceedings or creditor enforcement actions during a dissolution under state law. 5.2 Course of the Liquidation Procedure Dispositions in Chapter 7 Liquidation A Chapter 7 trustee must have bankruptcy court approval to sell the debtor’s assets and may use 11 USC Section 363 to sell assets outside the normal course of business, so long as the trustee demon - strates the sale is necessary and will maximise the In a receivership under state law, the court-appointed receiver generally has exclusive authority to negotiate and execute any sale of company assets. State law receiverships may allow for certain “free and clear” sale transactions. Generally, asset dispositions are reported to the state court. Dispositions in an ABC In an ABC, the assignee exercises its discretion regarding asset liquidations. Asset sales must comply with applicable state law. Sales remain subject to the liens of secured creditors unless a secured creditor consents to a sale of the asset “free and clear” of its lien. Court approval of a sale may be necessary if the ABC is court supervised. value of the estate for creditors. Dispositions in Receiverships
The timelines and duration of Chapter 11 liquidations vary from case to case. While Chapter 11 provides maximum flexibility for a liquidation, it can also be the most expensive and time-consuming type of liquida - tion proceeding. Confirmation of a liquidating Chapter 11 plan requires satisfaction of the same legal standards for confirma - tion of a Chapter 11 plan of reorganisation. See 4.2 Statutory Restructuring, Rehabilitation and Reor- ganisation Procedure . Inability to obtain confirmation of a Chapter 11 liqui - dation plan could cause the case to be dismissed or converted to a Chapter 7 liquidation. The Chapter 11 debtor may request conversion as a matter of right. Another party-in-interest may request conversion for “cause” if it can meet the statutory definition found in 11 USC Section 1112 (b). See 4.6 The Position of Shareholders and Creditors in Restructuring, Reha- bilitation and Reorganisation . Alternatively, rather than converting to a Chapter 7 liquidation, a debtor may negotiate a “structured dis - missal” of its bankruptcy case, which is a bankruptcy court-approved settlement agreement that may be used to administer the remaining estate assets faster and with less expense. Structured dismissal agree - ments must adhere to the Bankruptcy Code’s statu - tory priority scheme and cannot “gift” proceeds to a lower-priority creditor class while skipping a more senior, non-consenting class. State Law Receiverships Receivership proceedings may be used to liquidate a business with state court supervision. The receiver has jurisdiction over all property of the entity located within the state of the receiver’s appointment. Multiple receiverships may be necessary if the debtor has sig - nificant or complicated assets across multiple states. In those instances, a Chapter 7 or 11 case may be more practical. Commencement of a state law receiv - ership proceeding does not preclude the subsequent commencement of a bankruptcy case that may super - sede and stay the receivership.
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