An assignment for the benefit of creditors (an “ABC”) offers a distressed company a state-law alternative to the federal bankruptcy process.  In an ABC, the company (the assignor) voluntarily transfers control of all of its assets to an independent fiduciary (the assignee)—typically a restructuring professional—who liquidates those assets and distributes the proceeds to creditors under a defined priority scheme.  Company leadership’s decision to commence an ABC, rather than a Chapter 7 or Chapter 11 bankruptcy, turns on cost, speed, control, publicity, and the level of creditor and litigation pressure facing the company. With Delaware now becoming the sixth state to adopt the Uniform Assignment for Benefit of Creditors Act (the “Uniform ABC Act”), the ABC option has been meaningfully modernized for the number of businesses organized in Delaware.  Directors and officers of distressed companies should therefore understand how ABCs work, along with their advantages and disadvantages relative to the federal bankruptcy option.

Delaware’s Adoption of the Uniform ABC Act

The Uniform Law Commission approved the Uniform ABC Act on October 20, 2025, with the goal of replacing a patchwork of common-law and outdated statutory ABC regimes with a uniform, predictable framework—one that preserves flexibility and permits, but does not require, court involvement.

On June 11, 2026, Delaware Governor Matt Meyer signed Senate Bill 267 into law, making Delaware the sixth state (joining Alabama, Arizona, Iowa, Nebraska, and Utah) to enact the Uniform ABC Act, and replacing a Delaware ABC statute that dated back to 1875. Delaware’s version of the Uniform ABC Act (codified as new Chapter 73A of Title 10) adds several Delaware-specific features. Most notably, the Delaware ABC Act requires the assignee to file a petition with the Delaware Chancery Court within 14 days of the assignment, expressly excludes banks and insurers from acting as assignors, gives the Chancery Court explicit authority to approve auction and sale procedures, sets a 90-day floor for the claims bar date, and creates a realty transfer tax exemption for conveyances made under the Act.

ABCs v. Chapter 11 from a Corporate Governance Perspective

From a corporate governance perspective, the most important differences between an ABC and a Chapter 11 bankruptcy case are as follows:

First, an ABC does not impose an automatic stay or “breathing spell” from creditor collection efforts. While an assignee does take title to and control over the company’s assets—thereby limiting a creditor’s ability to seize property the company no longer owns or controls—there is no statutory injunction comparable to section 362 of the Bankruptcy Codee. Once a bankruptcy petition is filed, section 362 imposes an immediate, self-executing injunction that halts virtually all collection activity, including litigation, judgment enforcement, foreclosure, repossession, and setoff.  An ABC has no comparable backstop, making it ill-suited for companies facing imminent collection pressure, such as enforcement of a judgment or a foreclosure sale.

Second, unlike a sale conducted under section 363 of the Bankruptcy Code, an assignee generally cannot sell assets “free and clear” of liens, claims, and encumbrances.  As a practical matter, this means the assignee must either pay the secured creditor in full or obtain its consent to release the lien before the sale.  An ABC thus gives uncooperative secured creditors significant leverage to hold up a sale, extract a premium, or block a value-maximizing transaction altogether.

Third, unlike under section 365 of the Bankruptcy Code, an assignee cannot freely assign executory contracts or unexpired leases without the counterparty’s consent.  This gives contract counterparties considerably more leverage in an ABC than they would have in a Chapter 11 case.

Fourth, unlike in a Chapter 11 case, the Uniform ABC Act does not provide for the appointment of a statutory official committee of unsecured creditors.  Creditors of an assignor also generally lack standing to pursue avoidance actions, such as the recovery of fraudulent or preferential transfers.  Authority to pursue those actions in an ABC is instead concentrated in the assignee, who owes fiduciary duties to maximize distributions for creditors.

Lastly, the purpose, timeline, and cost of an ABC versus a Chapter 11 case differ significantly. While Chapter 11 is generally used as a tool used to reorganize a company as a going-concern and offers debtor-friendly mechanisms such as cramdown of creditors, an ABC’s purpose is to sell assets, distribute the proceeds to creditors, and wind down the company.  As a result, an ABC is typically less expensive and proceeds on a meaningfully shorter timeline than a Chapter 11 case.

The Bottom Line

Delaware’s adoption of the Uniform ABC Act materially upgrades one of the oldest tools in the distressed-company toolkit.  It makes an ABC a much more attractive option for small and middle-market companies in Delaware that lack the liquidity to fund a Chapter 11 case and do not need a broad automatic stay or other bankruptcy-specific tools—such as the ability to sell assets free and clear, assign contracts without counterparty consent, or cram down dissenting creditors. Because ABCs are generally less expensive and move on a faster timeline, directors and officers of a distressed company should weigh whether an ABC can achieve the company’s restructuring objectives, or whether the more expensive bankruptcy option can be justified consistent with their fiduciary duties.