An ABC is a state-law alternative to formal bankruptcy in which a distressed company transfers its assets to a neutral third-party assignee who liquidates those assets and distributes proceeds to creditors.
At CRAGSI, we define an Assignment for the Benefit of Creditors (ABC) as a state-law insolvency process in which a company voluntarily transfers legal title to all of its assets to a neutral third party — the assignee — who then liquidates those assets and distributes the proceeds to creditors in order of priority. It is one of the most commonly used alternatives to federal bankruptcy for distressed companies, particularly in California, Delaware, and other states with well-developed ABC statutes.
Unlike Chapter 7 bankruptcy, an ABC is generally faster, less expensive, and conducted outside of court oversight. The assignee has broad powers to sell assets, wind down operations, terminate contracts, and resolve creditor claims — often completing the process in weeks to months rather than years.
ABCs are often triggered when a company has exhausted its runway and cannot raise additional capital. In the venture capital ecosystem, ABCs have become the default wind-down mechanism for failed startups — and therein lies a critical problem: they are frequently deployed prematurely, before a genuine assessment of whether the company's assets could be recovered through a turnaround or structured sale.
At CRAGSI, we believe the ABC is a tool of last resort — not a first response. Before recommending an ABC, we conduct a rigorous triage to determine whether a company's assets could generate superior recoveries through a going-concern sale, restructuring, or strategic pivot.
Related CRAGSI services: Wind-downs, Liquidations & Dissolutions · Turnarounds & Restructurings