Rafael Zahralddin Publishes Credit & Financial Management Review Article on “ABC” Proceedings

Wilmington, Del. (November 1, 2023) - Wilmington Partner Rafael X. Zahralddin recently published an article titled, “Assignment for the Benefit of Creditors and State Law Preferences” in Credit & Financial Management Review, a peer-to-peer and practitioner publication of the Credit Research Foundation. The article discusses issues and considerations surrounding assignments for the benefit of creditors (ABCs) – state law insolvency proceedings used by debtors as an alternative to liquidating assets under the United States Bankruptcy Code.  

Mr. Zahralddin opens the article by describing an ABC, noting that financially distressed businesses are increasingly using this proceeding due to its “real or perceived cost savings when compared to a proceeding under either Chapter 11 or Chapter 7 of the Code.” The author points out that an ABC “is not necessarily limited to smaller companies,” as an assignment may be an “attractive alternative” for companies that determine that Chapter 11 simply “does not fit their circumstances.” 

Mr. Zahralddin goes on to detail the benefits of ABCs, namely, that they typically are less time consuming, subject to less oversight, less public, and less expensive, depending on the particular state law that governs them. The author notes, however, that ABCs are not necessarily “available or preferable for all debtors” and that they “cannot or should not be used in all circumstances,” such as where a debtor’s assets are located in several states. Next, Mr. Zahralddin discusses how ABCs work, explains preference actions (i.e., avoidance actions) as well as fraudulent conveyances, and describes the implications of federal and state laws in ABC proceedings. 

In the last section of the article, Mr. Zahralddin briefly describes recent developments in the ABC arena, observing that the “popularity of ABCs has led to a reform movement.” He explains that Washington State has eliminated the state law preference and that Minnesota “is contemplating” doing the same. The author closes the article by commenting on the future of ABCs, stating, “As ABCs continue to grow in popularity, hopefully, local legislators take control of the situation, modernize their statutes and follow suit.” 

Mr. Zahralddin is a member of Lewis Brisbois’ Corporate, Bankruptcy, Complex Business & Commercial Litigation, Digital Asset, and Ukraine Conflict Response Practices. He is a skilled business lawyer and litigator with significant experience advising clients in corporate and commercial litigation, insolvency, distressed M&A, compliance, corporate law and entity formation, corporate governance, commercial transactions, cyber law, regulatory actions, and cross-border issues. 

Read the full Credit & Financial Management Review article here.