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In a Chapter 7 or Chapter 13...
Apparel Company
Assignments for the Benefit of Creditors
An apparel company with a long history of success was suffering significant losses, the company’s annual sales had dropped from over $100 million to $60 million. The company had operations in the United States and Mexico, with over 300 employees, and $30 million of secured bank debt. The company was marketed extensively for capital infusion, refinancing, or sale.
The bank refused to make any further advances to the company. As a result, the company was faced with a liquidity/cash crisis. Funding was insufficient for a viable chapter 11 reorganization. Immediate action was needed to preserve rapidly decreasing value. Based on extensive marketing, it was clear that the business/assets (both on a going concern and liquidation basis), were worth considerably less than the amount owing to the bank. As the best alternative under these difficult circumstances, the bank consented to the implementation of a prepackaged transaction through an assignment for the benefit of creditors.
An asset purchase agreement was negotiated by the assignee with the highest bidder. The bank consented to a discounted payoff. The general assignment was commenced and the asset purchase agreement entered contemporaneously. The company was sold on a turnkey basis free and clear of all liens (with the bank’s consent) and claims. The loss of jobs was minimized, value preserved under urgent/dire circumstances, and the bank paid off at a discount.