The Priority Waterfall: How Creditors Get Paid in a California ABC

One of the first questions creditors ask when a business assigns is: where do I stand? The answer depends on the priority waterfall — the legally mandated order in which claims are paid from the liquidated assets. Understanding the waterfall is essential for both assignors and creditors.

The Priority Order

Secured creditors with perfected liens are paid first, from the proceeds of their collateral. Next come administrative expenses of the assignment itself. Then priority unsecured claims — including employee wages (up to $4,550 per employee for the 90 days before the assignment), employee benefits contributions, and customer deposits. General unsecured creditors share whatever remains, pro rata. Equity holders receive nothing unless all creditors are paid in full.

Wage claims have priority over most other unsecured claims. Employees who are owed back wages from the 90 days before the assignment receive priority treatment. This makes ABCs particularly important to handle carefully for businesses with unpaid payroll — the assignee will pay these claims before general trade creditors see anything.

The California ABC System gives business owners and creditors the exact tools, templates, and step-by-step guidance to navigate an Assignment for Benefit of Creditors — faster and cheaper than bankruptcy, without a federal court filing. Request your free evaluation here.