Laws on assignments for the benefit of creditors and the uses of assignments vary from state to state. In some states, the assignment is a common law procedure with little or no statutory guidance or court supervision. In other states, the procedure is statutory and court supervised. In some states, an assignment for the benefit of creditors is a commonly used procedure for winding up an assignor’s business. In other states, the procedure is not or is rarely used. The only common uniform statutory thread through this maze of the various state laws and practices is the status of the assignee as a “lien creditor” under Article 9 of the uniformly enacted Uniform Commercial Code for purposes of applying the Article 9 priority rules.
In the last year the Uniform Law Commission has been drafting a proposed uniform or model state law on assignments for the benefit of creditors with the goal of providing uniformity among the laws of the various states on the subject. The current draft provides for a nexus test for the assignor to make an assignment in the enacting state, minimal court involvement, a disinterested test for the assignee, duties of the assignor to the assignee, duties of the assignee as a fiduciary for creditors, publicity for the assignment, a claims resolution process, a waterfall for the distribution to creditors from proceeds of asset dispositions, the quality of title obtained by a purchaser of assets from the assignee, and limited exculpatory provisions protecting the assignee in the performance of its duties. The current draft also permits an assignment in one state to be recognized in another state for assets of the assignor located in the other state.
The drafting committee plans to meet several times over the next year with the goal of developing a final act to be approved as a uniform or model act by the Uniform Law Commission in the summer of 2025 and thereafter to be considered for enactment by the states. The committee consists not only of Uniform Law Commission members and an American Bar Association advisor (Patricia Redmond), but also a reporter (Professor Laura Coordes of Sandra Day O’Connor School of Law at the Arizona State University) and numerous observers from the assignment community, judges, lawyers, and academicians. The current draft of the act is available on the Uniform Law Commission website, uniformlaws.org. Anyone interested in becoming an observer to the committee and participating in the drafting process should contact the author of this article (and chair of the drafting committee) at [email protected].
