When parties contract for arbitration of their disputes:
Assignment for benefit of creditors (“ABC”) laws are, historically, a debtor remedy. ABC laws are a voluntary debtor tool for shutting down and winding up the debtor’s failed business.
Ancient History
ABC laws began under the common law, back in merrie olde England, arising out of the law of trusts. Under trust law, any person can, without restriction, transfer assets into a trust for the benefit of one or more people.
The Spanish government has very recently approved a reform of the Spanish Insolvency Law, which will enter into effect within 20 days of its publication in the Spanish Official State Journal (Boletín Oficial del Estado), except for the third book of the restated Spanish Insolvency Law, which will enter into effect on 1 January 2023.
Hace unos días se aprobó la reforma de la Ley Concursal, que entrará en vigor a los veinte días de su publicación en el «Boletín Oficial del Estado», con excepción del libro tercero del texto refundido de la Ley Concursal, que entrará en vigor el 1 de enero de 2023.
An assignment for benefit of creditor (“ABC”) is, historically, a nonjudicial process for administering the affairs of a failed business. ABC laws are rooted in English common law and predate enactment of federal bankruptcy laws in the U.S.[Fn. 1]
An ABC is made by a formal, voluntary transfer of most-or-all of a business’s assets to an assignee, in trust, to apply the property or its proceeds to the payment of debts and to return any surplus to the debtor.
I’m on a curiosity-quest to find the first-ever U.S. Supreme Court opinion on the subject of bankruptcy.
Excitement arises, for a moment, upon discovering Gibbs v. Gibbs, 1 U.S. 371 (1788). After all, Gibbs v. Gibbs:
In The Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority [2021] VSCA 294 (Australian Sawmilling), the Victorian Supreme Court of Appeal (VSCA) dismissed an appeal by the liquidators of The Australian Sawmilling Company Pty Ltd (TASCO) against a decision of Garde J of the Victorian Supreme Court (VSC) setting aside the liquidators’ disclaimer of land subject to significant environmental ‘clean up’ costs (Primary Judgment).
Here’s a hard-knocks rule for debtor attorneys:
- Never file Chapter 7 for a corporation or an LLC.
Chapter 7 has always been a grave yard for failed Chapter 11s: that’s where Chapter 11 cases go when debtors can’t get a Chapter 11 plan confirmed. For example, 35.4% of Chapter 11 cases filed between 1989 and 1995 converted to Chapter 7. [Fn. 1]
But Chapter 7 is rarely a good first-choice for corporations and LLCs who want/need to liquidate.
Every now and then we get a glimpse into the past . . . that casts light on issues and events of today.
One such glimpse is a Harvard Law Review article from 1909: “The Effect of a National Bankruptcy Law upon State Laws.”[Fn. 1]. It’s by Samuel Williston—the same Samuel Williston who authored “Williston on Contracts” and who served as professor of law at Harvard Law School from 1895 to 1938.
Bankruptcy v. State Laws—in 1909
The Court of Appeal has held that a settlement agreement between a bank and a group of companies which included releases of the parties’ affiliates prevented the companies from later pursuing claims against their own affiliates. Those affiliates were held to include former administrators appointed by the bank and the administrators’ solicitors: Schofield v Smith [2022] EWCA Civ 824.