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.

This week’s TGIF considers Manda Capital Holdings Pty Ltd v PEC Portfolio Springvale Pty Ltd [2022] VSC 381, a recent Victorian Supreme Court decision that focused on the effect of COVID-19 on the property market, through the lens of a mortgagee’s duties under section 420A of the Corporations Act 2001 (Cth).

Key takeaways

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:

This week’s TGIF examines a recent NSW Supreme Court decision that illustrates the circumstances in which a person will be regarded as a ‘de facto director’ and the duties owed to creditors when facing insolvency.

Key takeaways

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

Bankruptcy issues have been around for a very long time—for centuries, in fact.

And bankruptcy issues have been discussed in these United States for the entire time of our existence–and before.

Even in our Colonial times (prior to 1776), bankruptcy and insolvency issues were in much discussion—especially since debtors often found themselves imprisoned, back then, for unpaid debt.

This week’s TGIF considers Krejci, in the matter of Union Standard International Group Pty Limited (in liq) (No 7) [2022] FCA 890, in which the Federal Court gave liquidators approval to conduct extensive and expensive public examinations despite there being limited expected return to creditors, in part to try and uncover the truth behind $585 million that cannot be accounted for in the company’s dealings.

Key takeaways

Three InfoWars entities file voluntary bankruptcy on April 17, 2022, under Subchapter V of Chapter 11.[Fn.1] And a storm of controversy immediately erupts on whether the three entities actually qualify for Subchapter V relief.

On June 10, 2022, the Bankruptcy Court enters an “Agreed Order Dismissing Debtors’ Chapter 11 Cases” (Doc. 114), based on this stipulation of the three InfoWars debtors: “Debtors and the UST wish to stipulate to the disposition of the Chapter 11 Cases.”

State laws on assignments for benefit of creditors (“ABC”) have been around for a long time. But times have changed over the last half-century. Specifically, the bankruptcy alternative has changed dramatically: