In this proceeding for the assignment for the benefit of creditors (“ABC proceeding”), the company assigned all of its property and assets to another corporation. The Court of Chancery denied the assignment, which was challenged by an unsecured creditor of the company-assignor, and removed the corporation as the assignee for cause.
ABC proceedings are governed by 10 Del. C. §§ 7381–87 (the “ABC Statute”) and require judicial oversight. Under the ABC Statute, assignees are required to file an affidavit of inventory of the assignment, give a bond approved by the Court, and submit annual accountings. The Court noted that in recent years it has focused on increasing the transparency of the ABC process by requiring more detailed information from assignees and establishing firm deadlines to the extent they are not otherwise contained in the ABC Statute. Among other things, following the filing of the petition, the assignee must file an affidavit of inventory with the Court within 30 days of the assignment, after which the assets of the assignment estate are appraised. Once the appraisal is completed, the assignee files a motion seeking an order from the Court to set the bond in an amount tied to the appraisal. The assignee must then submit an accounting every year from the date of the assignee’s bond until the case is closed. The Court emphasized that because ABC actions are predominantly ex parte, the Court must be particularly careful to oversee and enforce the ABC Statute mandates.
Here, the assignee did not come close to satisfying these statutory requirements. First, the assignee did not file an affidavit of inventory within 30 days of the assignment or at any time thereafter. Second, the assignee failed to seek the Court’s appointment of two appraisers to appraise the assets of the assignment estate. Finally, the assignee did not file an annual accounting. The Court explained that the ABC Statute provided the authority for the Court to remove and replace an assignee for cause. Accordingly, under the extreme circumstances of this case, the Court found that the corporation’s pervasive non-compliance with the ABC Statute was sufficient cause to warrant its removal as the assignee.
