Assignment for benefit of creditors

How does an ABC work?

An ABC has three parties: the insolvent company (the assignor), its creditors, and an independent assignee who holds the assets in trust for those creditors. The company signs an assignment agreement transferring everything it owns. The assignee then sells the assets, reviews claims, and distributes the cash.

State law sets the details, and states differ sharply on how much a court is involved.

California. ABCs are non-judicial. As Husch Blackwell’s cannabis group explained in December 2023, no court approval is needed and the process is governed by common law with some statutory controls. The main one is Code of Civil Procedure section 1802: the assignee must send notice to creditors and equity holders within 30 days of accepting the assignment and must set a claims deadline between 150 and 180 days after the first notice.

Washington. The assignment is only the first step. Under RCW 7.08.030 the assignee files a petition in superior court and is appointed as a receiver. Creditors have 30 days from notice to ask for a different assignee, and no non-perishable property may be sold while that motion is pending. A Washington cannabis ABC is therefore a receivership in practice, and the LCB’s receiver rule applies, including the preapproved receiver list and the six-month residency requirement.

Other states sit somewhere between these two. Before choosing an ABC, counsel in the licence state needs to confirm whether the process is court-supervised, because that decides how private and how fast it is.

How an ABC interacts with a cannabis licence

The assignment transfers assets. It does not transfer the licence, and it puts a new person in control of a licensed business. Regulators care about both facts.

• California names ABCs in its insolvency rule. Under 4 CCR 15024 the assignee, as successor in interest, must notify the DCC in writing within 14 calendar days on form DCC-LIC-027, with documents proving its authority. The DCC can approve continued operation for a period it chooses, either while a buyer’s licence application is reviewed or to allow inventory to be sold or destroyed. The approval gives no vested right to a licence. California licences are also not transferable or assignable, so the buyer from the assignee applies for its own licence at the premises. See California.
• Massachusetts requires Commission approval before any new person or entity with direct or indirect control is added to a licence under 935 CMR 500.104. An assignee taking over management fits that description. See Massachusetts.
• Colorado’s temporary appointee registration under Rule 2-275 is written for persons appointed by a court. A purely contractual assignee does not obviously fit, so expect to be treated under ordinary ownership and control rules unless the ABC is brought under court supervision.

In every state, an assignee who takes control of plants, product, or the track-and-trace account without clearance risks being treated as an undisclosed controlling party. The general framework is on true party of interest and financial interest rules.

ABC or receivership: which fits?

Question	ABC	Receivership
Who starts it	The company, voluntarily	Usually a creditor, by lawsuit
Who picks the fiduciary	The company, often with lender input	The judge
Court involvement	None in California; court-supervised in Washington	Continuous
Stay against creditors	None	By court order, or by statute in states such as Oregon
Sale order cleansing junior liens	No; releases are negotiated	Yes, in states whose receivership acts allow it
Publicity	Notice to creditors only	Public court docket
Best use	Cooperative lender, few disputes, a buyer already identified	Contested liens, hostile creditors, landlord problems

The missing sale order is the ABC’s real weakness. A receiver’s buyer gets a judge’s order moving liens to the proceeds. An assignee’s buyer gets a bill of sale and whatever lien releases the assignee can collect. That works when the secured lender supports the deal and the tax position is clean. It works badly when a tax agency has filed a lien, because nobody can force a release. How a court-ordered sale differs is covered in cannabis receivership sales explained.

How creditors are paid

The assignee pays secured creditors from their collateral, then priority claims, then general unsecured creditors pro rata. In California, taxes, unpaid wages, employee benefits and customer deposits are paid ahead of general unsecured claims.

Federal claims need particular care. 31 U.S.C. 3713 says a claim of the United States is paid first when an insolvent debtor makes a voluntary assignment of property, and a representative who pays other debts first is personally liable to the extent of those payments. Cannabis companies often carry large income-tax balances because of 280E, so an assignee will want the IRS position documented before any distribution. Lien ranking is covered in tax-lien priority in cannabis sales.

When an ABC makes sense for a cannabis owner

An ABC suits a company whose board accepts that equity is gone, whose senior lender will cooperate, and whose main asset can be sold quickly to a buyer who can be licensed. It avoids a public docket and a contested hearing. It can also let directors show they handed the wind-down to an independent fiduciary rather than picking which creditors to pay.

It is a poor fit if a landlord is about to lock the doors, if creditors are racing to judgment, or if the only valuable thing is a licence in a state where the assignee cannot get authority to operate. If the business can still be sold as a going concern, compare the alternatives in selling a cannabis business in distress. This page is general education, not legal advice.