The ABC and Ongoing Litigation: What Happens to Lawsuits In Progress

When a business makes an assignment, any litigation the business is involved in — whether as plaintiff or defendant — transfers to the assignee. How the assignee handles pending lawsuits affects both the estate’s asset value and its liability exposure.

Assignee as Plaintiff

If the business has pending claims against others — breach of contract, unpaid invoices, insurance claims — those claims become assets of the estate. The assignee has a duty to pursue recoveries that benefit creditors. Claims that would have been abandoned by a struggling business owner are sometimes worth pursuing when viewed through the lens of creditor recovery.

The assignee can also settle or abandon litigation strategically. An assignee who faces a lawsuit against the estate as defendant can negotiate a settlement that makes sense given the asset pool available. Creditors who have filed suit against the business before the assignment become claimants in the ABC process — their claim is for the amount owed, not a judgment against assets that may not exist.

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.