What is an assignment for the benefit of creditors, and what happens to company data?

ABC in one sentence

An assignment for the benefit of creditors is a voluntary, state-law process in which an insolvent company, the assignor, transfers its assets to a fiduciary, the assignee, who holds them in trust, sells them and distributes the proceeds to creditors.

That description follows the standard account in commercial-law texts such as this open textbook chapter on alternatives to bankruptcy, which also notes that a common-law assignment does not by itself discharge the company's unpaid debts. Because the process comes from state law, the details differ from state to state: some have detailed statutes and court supervision, others rely mostly on common law. Three features are broadly consistent. The company chooses its assignee, there is no federal bankruptcy filing, and there is no automatic stay holding creditors back.

How an ABC works, step by step

1. The board, and the shareholders where the charter or state law requires it, approve the assignment.
2. The company selects a professional assignee and negotiates the assignment agreement, including the assignee's fee.
3. Signing the agreement transfers title to the company's assets to the assignee, in trust for creditors.
4. The assignee notifies creditors and runs a claims process under the state's procedure.
5. The assignee sells the assets, sometimes as a going concern within weeks, sometimes piece by piece.
6. Proceeds are distributed in the priority order that state law sets.
7. The empty company is dissolved in a separate step.

Illustrative and fictional: a 90-person HR software company runs out of runway after a failed fundraise. Its board picks an ABC over bankruptcy to move quickly and quietly. The assignee sells the code and customer contracts to a competitor, while the email, ticket and engineering archives remain with the assignee, who keeps the cloud accounts paid long enough for a licensing review.

ABC vs similar terms

For a fuller side-by-side, including how fast systems tend to be switched off in each path, see ABC vs chapter 7. For who can sign for a company under a court-appointed receiver, see who can sign a data license in receivership.

What happens to email, CRM, code and documents in an ABC

Most overviews stop at the asset sale. For a business with years of operating history, the records deserve their own line.

• They are assets. A general assignment covers hosted systems as well as hardware, so the assignee takes control of the email tenant, chat workspace, CRM, help desk, code repositories and shared drives.
• They are fragile. Unpaid software vendors suspend accounts, admin logins leave with departing staff and laptops get wiped for resale.
• The assignee decides. Each archive can be preserved, sold with the operating assets, licensed or securely destroyed.
• Privacy promises still bind. If archives hold customer personal data, check what the privacy policy and terms said. FTC staff warned in February 2024 that adopting more permissive practices, such as using data for AI training, through a quiet retroactive change to terms could be unfair or deceptive.

Software companies face extra questions about customer data and code ownership, covered in SaaS companies in an ABC. Assignees can work from the ABC assignee day-one records preservation checklist.

Why it matters if the company could license its data

Preserved records can add recovery for creditors. Through SourceX, a company's operational records can be licensed to AI labs and data buyers, who need records of real work to train and evaluate AI agents. The company, or here its estate, keeps ownership; the license is typically exclusive for AI training for an agreed term, for one all-in price paid once.

To qualify, the company should have had 50+ full-time employees at peak (contractors excluded), several years of documented operations, records across many systems it created itself, and an authorized sponsor, which after the assignment is the assignee. A wound-down company can still qualify as long as the data exists. The who qualifies page has the full baseline, and the company fit checker gives a quick, non-binding read.

Owners considering an ABC should raise the records with counsel and the prospective assignee before signing, while someone still holds the admin logins. Advisors who see these situations regularly can read about the referral partnership for ABC assignees.

This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

Next step

If you advise a company heading toward an ABC, put its records on the pre-assignment checklist, then register as a partner and make the introduction. Owners and assignees can also apply directly at sourcex.si/apply.