Assignment for Benefit of Creditors

It is not necessary for a debtor to obtain the consent of creditors before making an assignment for their benefit. An owner of property has a right to transfer legal title to it by virtue of ownership. The limitation derived from common law that is placed upon its creation is that it cannot be done to dishonestly deprive a debtor's creditors of their rights to have property sold to repay debts. When an assignment for the benefit of creditors is intended by the debtor to place his or her property beyond the legal reach of creditors, it is called a FRAUDULENT CONVEYANCE. This type of assignment is void, or legally ineffective, under statutes that prohibit such arrangements. An assignment by which the assignor-debtor retains any interest, benefit, or advantage from the conveyance, such as keeping the right to revoke the assignment, made to defraud creditors is also a fraudulent conveyance, as is an assignment by which the assignee is required to delay liquidation of the assets.

In some jurisdictions, a partial assignment is considered a fraudulent conveyance because the creditors are hindered and delayed in receiving payment if they must seek payment from the debtor after first being referred to the assignee. Other jurisdictions treat any assignment by a solvent debtor as fraudulent on the theory that such an arrangement prevents the immediate sale of the property so that creditors are delayed and hindered.