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Assignment for the Benefit of Creditors: Effective Tool for Selling and Winding Up Distressed Businesses
David S. Kupetz, Category: Assignment for the Benefit of Creditors
Valley Lawyer, June 2013
“XYZ CORP (XYZ) Is a wireless technology company which was formed four years ago. Since that time, more than $25,000,000 in equity investments has poured into XYZ. Additionally, XYZ has incurred more than $5,000,000 in unsecured debt that it is now unable to pay. While XYZ has developed some exciting products, it continues to operate on a negative cash flow basis, and is unable to obtain further funding through either equity investment or debt placement. The Board of Directors of XYZ has considered the realistic alternatives available to XYZ. At this point, XYZ is insolvent (XYZ’s debts exceed the value of its assets). The board recognizes that, under the circumstances, it has fiduciary obligations running to XYZ’s creditors and that it is required to act in a manner reasonably designed to maximize creditor recovery.”