One of the most important concepts in any insolvency proceeding is the preferential transfer — a payment or asset transfer made to a creditor before the insolvency that can be recovered by the assignee and redistributed to all creditors equally. California’s ABC law gives assignees the power to pursue these recoveries.
What Constitutes a Preference
A preferential transfer is a payment made to a creditor: within 90 days before the assignment (one year for insiders), while the business was insolvent, that allowed the creditor to receive more than they would have received in the assignment itself. Payments to vendors, banks, landlords, or other creditors that meet these criteria are potentially recoverable.
Ordinary course payments are usually protected. The most important defense to a preference claim is the ordinary course of business defense — payments made consistently with the prior history of the business relationship are generally not recoverable. A business that always paid its primary supplier net 30 and continued that practice until the assignment is not making a preferential payment. Businesses that make unusual lump-sum payments to favored creditors shortly before the assignment are in different territory.
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.
California ABC System — Assignment for Benefit of Creditors 
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