ASSIGNMENT FOR BENEFIT OF CREDITORS Meaning and
Definition
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An "assignment for benefit of creditors" refers to a legal and voluntary process in which a debtor assigns their assets and properties to a third-party, known as an assignee, for the purpose of liquidating or distributing these assets among the creditors. This assignment is undertaken by the debtor to satisfy their debts. It is often considered an alternative to bankruptcy.
In this arrangement, the assignee takes control of the debtor's assets and manages their liquidation or distribution to the creditors. The assignee acts as a fiduciary, obeying the instructions and regulations set forth by the debtor. They are responsible for ensuring the fair and equitable distribution of the debtor's assets among the various creditors, following a predetermined order of priority.
The assignment for the benefit of creditors process provides advantages for both the debtor and the creditors. For debtors, it offers an opportunity to avoid the lengthy and expensive bankruptcy process while still satisfying their creditors to the greatest extent possible. In turn, creditors benefit from receiving some form of payment or distribution rather than potentially incurring a total loss in the event of a bankruptcy.
While the specific regulations and procedures relating to assignments for the benefit of creditors may vary by jurisdiction, the underlying purpose remains consistent – to facilitate a coherent and organized resolution to a debtor's financial obligations for the benefit of all involved parties.
