When Creditors Challenge an ABC: The Paths to Litigation

Most ABCs proceed without significant creditor opposition. But some creditors — particularly large secured creditors, former employees with significant wage claims, or creditors who believe preferences were paid — may challenge aspects of the ABC. Understanding when and how challenges arise helps both assignees and business owners anticipate problems.

Common Challenge Grounds

Creditors may challenge: the validity of the assignment itself (if the deed has defects), the assignee’s administration decisions (if they believe assets are being mismanaged or undervalued), preference recovery actions (which the assignee brings against creditors who received pre-assignment payments), or the claims allowance process (if their claim is disallowed or reduced).

The California superior court has jurisdiction over ABC disputes. Unlike bankruptcy, which is a federal court proceeding, ABC disputes are resolved in California state court. A creditor who wants to challenge an ABC decision files in the superior court of the county where the assignment was made. This is faster than federal court and less expensive — but it also means there is no automatic stay protecting the estate from creditor actions.

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.