A Cautionary Tale for Drafters of General Assignment Agreements
July 2024
Publication| Bankruptcy & Corporate Restructuring
A recent unpublished decision from the U.S. Bankruptcy Court for the Southern District of New York, In re Schiff Fine Art LLC, denied a motion of an assignee for the benefit of creditors (the “assignee”) to dismiss or abstain from hearing an involuntary chapter 7 case. The opinion has garnered attention because the assignee had already been liquidating the estate for approximately 10 months by the time his motion was denied. While this result is atypical and disconcerting, particularly for an assignee that has spent significant resources doing his/her job, a close read of the opinion demonstrates that its central holding turned on a few key facts that are absent in almost all assignment for the benefit of creditors (ABC) cases.
First, the debtor in Schiff Fine Art actually consented to the involuntary petition — an action that is unheard of after a voluntary ABC. Second, the general assignment contained a highly unusual provision that the assignor would retain sole authority to defend litigation against the assignor. Thus, practitioners and companies considering an ABC should not despair that Schiff Fine Art creates significant risks in an ABC case, but instead should take it as a warning not to significantly depart from a standard general assignment agreement; the result here likely would have been different if a standard assignment agreement were used.