Three creditors with qualifying claims can force an assigned company into federal bankruptcy — converting the quiet ABC into a court-supervised case. Rarely used, always loaded, and the reason assignees answer creditor mail.
What the Law Says
Bankruptcy Code section 303 permits three or more creditors holding qualifying unsecured claims to file an involuntary petition; a general assignment for the benefit of creditors is itself statutory grounds. The filing supplants the assignee with a trustee, imports federal avoidance powers — including the preferences the Ninth Circuit reserved to bankruptcy — and restarts administration under court oversight.
How to Navigate It, Step by Step
- Understand the trigger: an ABC within the preceding 120 days is an enumerated basis for involuntary relief.
- Count the coalition: three qualifying creditors and the resolve to see it through.
- Weigh the trade: federal powers and oversight against duplicated administration and delay.
- Use the leverage first: the credible mention of 303 reforms assignee behavior faster than the filing.
- Reserve the trigger for real pathology — self-dealing sales, ignored transfers, opaque accounting.
Common Questions
When does converting an ABC to bankruptcy actually help creditors?
When federal-only powers matter: contested preferences, insider sales needing a trustee’s subpoena, or an assignee who has stopped being a fiduciary.
What is the risk to petitioning creditors?
A dismissed bad-faith petition can carry damages — the coalition files on documented grounds or negotiates instead.
Get the free California ABC Kit at justiceprompt.com — proof of claim templates, creditor monitoring checklists, wind-down planning worksheets, and AI prompts to customize every document to your situation. Free, no email wall. Also available with all ABC resources at assignmentforbenefitofcreditors.org. Educational use only — not legal advice.
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