ABC vs Chapter 7: which wind-down path applies, and who controls the records?

ABC vs Chapter 7: the short answer

An assignment for the benefit of creditors (ABC) is a state-law wind-down in which the company transfers its assets to an assignee, who sells them and pays creditors. Chapter 7 is a federal bankruptcy in which a court-supervised trustee does the same. Choose an ABC for speed and control over who runs the sale, and Chapter 7 when the court's powers or a single, binding process are needed.

For a data-licensing introduction, either path leaves one question: who holds authority over the records now. In an ABC it is the assignee. In Chapter 7 it is the trustee.

How do an ABC and Chapter 7 work?

In an ABC, the debtor (assignor) transfers assets to an assignee who holds them in trust, liquidates them and distributes the proceeds, as the Saylor Academy open textbook on alternatives to bankruptcy explains. A common-law assignment does not by itself discharge the unpaid balance of debts, although some state statutes address that point.

ABCs are governed by state law, so procedures vary. The Florida statutes on general assignments are one example: they set a uniform procedure for insolvent estates, circuit-court supervision, claim priorities and a final report by the assignee. Other states differ, and some rely mostly on common-law assignments, so check the current law of the state in question.

In Chapter 7 the trustee takes the estate and sells it under the Bankruptcy Code. The Chapter 7 trustee role page covers what the trustee does with records.

Side-by-side comparison

How does each path handle records and data?

Records pass to whoever holds the estate. In an ABC, the assignment instrument lists the assets, and well-drafted ones include books, records, software and data. In Chapter 7, records belong to the estate to the extent the debtor owned them, and the trustee decides whether to preserve, sell or abandon them.

Under both paths the same practical risks apply:

• Cloud subscriptions lapse when nobody pays, and systems disappear.
• Former employees leave and take system knowledge with them.
• Client and customer confidentiality limits what can be licensed.
• A secured lender may hold a lien that reaches intangibles.

Which path fits a partner's situation?

Partners do not advise on which path to choose. That is for counsel. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

What happens to speed and paperwork?

Speed is the most common reason given for choosing an ABC, but it is a tendency, not a rule. A Chapter 7 case with a cooperative trustee and few contested claims can also move briskly, while an ABC with a lender dispute can stall. For licensing, the useful measure is how soon someone with authority can say yes or no.

Whichever path applies, a review goes faster with a clean paper trail: a signed assignment or court order, a clear list of transferred assets, and proof that the signer had authority. Missing paperwork is a common reason reviews stall.

Questions to ask before you introduce anyone

1. Which path is the company on, and where is the document that proves it?
2. Who holds authority over the records today: assignee, trustee or board?
3. Do the records still exist, and who can retrieve them?
4. What approvals would a license need: creditor notice, court order or lender consent?
5. Has any of the data already been licensed for AI training?

The wind-down advisors partner program is built for people who work these situations, and exit readiness shows how to preserve records before a path is chosen. A virtual data room from an earlier sale effort can reveal what exists, and proprietary data explains what counts as an asset worth licensing.

How does SourceX fit?

SourceX qualifies the company on size, history, data breadth and rights, runs the data inventory, agrees one all-in price and terms with the person who has authority, and manages buyer review, delivery and payment. Companies that are operating, acquired or wound down can qualify if the data still exists. The company fit checker gives a preliminary, non-binding screen, and the who qualifies page lists the baseline of 50+ full-time employees at peak (contractors excluded).

How partner rewards work

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Restructuring professionals should check their engagement terms and any court or professional rules on fees before registering.

Next step

Work out the path and the authority first. Then register as a partner and introduce the assignee or trustee, or have them apply directly at sourcex.si/apply with your referral link.