ABC vs. Out-of-Court Workout: When Informal Resolution Is Better

Not every financially distressed business needs a formal insolvency proceeding. Sometimes an out-of-court workout — direct negotiation with creditors to restructure or forgive debt — produces a better outcome than either the ABC or bankruptcy.

When Workout Makes Sense

A workout is appropriate when: there are relatively few creditors (making coordination practical), the business is viable and the problem is temporary cash flow, key creditors are willing to negotiate, and the business has leverage (such as the threat of an ABC that would produce worse creditor recoveries than a voluntary settlement).

The ABC is a powerful negotiating tool even if you never use it. A creditor who understands that the alternative to a negotiated workout is an ABC — which might produce 15 cents on the dollar — has a strong incentive to agree to 50 cents on the dollar voluntarily. Business owners who understand their options can negotiate from knowledge rather than desperation.

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. Request your free evaluation here.