Recent amendments to Ch. 727 will streamline various aspects of assignments for the benefit of creditors.

• Author: Cooke, Jodi Daniel
• Position: Florida

The recent legislative session produced significant changes to several practice areas within Florida business law, including assignments for the benefit of creditors or "ABCs." These amendments to F.S. Ch. 727 clarified and streamlined procedures relating to notice, bond amounts, discovery, an assignee's deed, the rejection of unexpired leases, and objections to claims in an ABC proceeding. This article briefly reviews the changes and the reasons for those changes.

A Brief History of ABCs in Florida

An ABC is a state law procedure for the administration of an insolvent estate, under which a debtor or "assignor" voluntarily and irrevocably assigns its assets to a third party of the debtor's choosing. That third party (the assignee) is charged with liquidating the debtor's assets to satisfy his or her creditors' claims. Many ABC cases are filed with the consent of some or all of the debtor's creditors.

Though the practice has been codified since Roman times, ABCs originally existed at common law in the United States. (1) In Florida, the original ABC act was enacted in 1889 (Laws of Florida Ch. 3891), but was substantially redrafted in 1987 (Laws of Florida Ch. 87-174) and further amended in 1989, 1991, 1997, 1998, 1999, 2007, and 2008 (as amended, the ABC statute). The constitutionality of an ABC was affirmed by the Florida Supreme Court in 1896 (2) and has been upheld in subsequent cases. (3)

ABCs are similar to federal bankruptcy liquidation proceedings in that they ensure full reporting to creditors and require equal distribution of a debtor's assets according to the priorities established in the ABC statute. An ABC is primarily distinguishable from the federal bankruptcy process in that 1) it does not impose an automatic stay in favor of the debtor (4); 2) it does not grant an assignee special authority to recover assets that were transferred immediately before the filing (5); and 3) unlike most types of bankruptcy proceedings, it does not provide a discharge of any debt.

Amendments to Notice Provisions

Prior to the amendments, F.S. [section]727.108(4) allowed an assignee to conduct the business of the assignor for a limited period of time (up to 14 days) or longer upon notice. Section 727.111(4) required such notice to be given at least 20 days before the assignee's operation of that business beyond the initial 14 days. Common sense dictates that an assignee's compliance with the notice provision was impossible unless the notice required by [section]727.111(4) was sent before the assignment had even occurred.

To remedy this conflict, the amendments extend the time within which an assignee may conduct the business of the assignor under [section]727.108(4) from 14 days to 45 days. (6) The enlarged time frame is a more realistic window for...