In analyzing the parameters surrounding a state law assignment for benefit of creditors, as well as the extent and limits of the powers of the assignee, the Eleventh Circuit in Ullrich v. Welt (In re NICA Holdings, Inc.), 2015 WL 9241140 (11th Cir. 2015) held that an assignee for the benefit of creditors lacks the authority to file a bankruptcy petition on behalf of the assignee.

In NICA Holdings, the debtor owned stock in a company a company commonly called “Nicanor” which owned and operated a fish farm in Nicaragua. Peter Ullrich and a company called Biotec Holdings owned the remaining shares in Nicanor. When NICA Holdings experienced financial difficulties, it executed an Assignment for the Benefit of Creditors, pursuant to the applicable Florida statute. Under the Florida ABC statute, an assignment for the benefit of creditors serves as an alternative to bankruptcy, with the statute providing for the irrevocable assignment by the assignor of its assets to the assignee, with the assignee charged with disposing of the assets in accordance with state law. In this instance NICA Holdings assigned its assets to Kenneth Welt. When his efforts to sell NICA Holdings’ stock in Nicanor came to naught, Nicanor ceased business operations, and Ullrich instituted litigation against him, Welt filed a bankruptcy petition on behalf of NICA Holdings. Welt believed he had authority to cause NICA Holdings to file bankruptcy under the terms of the Assignment which NICA Holdings had signed in his favor. Ullrich disagreed and filed a motion to dismiss the bankruptcy case on the argument that Welt, as an assignee of NICA Holdings, lacked authority to file a bankruptcy petition on its behalf. The bankruptcy court denied Ullrich’s motion to dismiss, but the Eleventh Circuit agreed with Ullrich and reversed and remanded the case to the bankruptcy court with instructions to dismiss it.

The Eleventh Circuit began its analysis of the authority issue by notice that Florida’s Assignment for Benefit of Creditors (“ABC”) statute is designed to provide a simpler and cheaper process to the more complex procedures provided by the Bankruptcy Code. The ABC process may, in certain instances, be preferable because it is more flexible, faster, more private and less supervised than bankruptcy proceedings. In addition, the Eleventh Circuit noted that Florida courts had described the ABC statute as “an alternative to bankruptcy [that] allows a debtor to voluntarily assign its assets to a third party in order to liquidate the assets.” Hillsborough Cty. V. Lanier, 898 So. 2d 141, 143 (Fla. 2d DCA 2005). The Eleventh Circuit held that ABCs and bankruptcy proceedings are alternative proceedings—a debtor chooses to pursue one to the exclusion of the other. The ABC statute lacked any provision empowering an assignee to file a bankruptcy petition on behalf of the assignor, and the Eleventh Circuit refused to read any such power into the statute. Furthermore, the Assignment Agreement itself under which NICA Holdings assigned its assets to Welt did not contain any language specifically authorizing Welt to file a bankruptcy petition on NICA Holdings’ behalf. The court noted that the language of the agreement, while granting Welt broad powers, authorized him to exercise those powers only in furtherance of the ABC.

Could an assignee for the benefit of creditors file a bankruptcy on behalf of the assignor if the assignor grants specific authority to the assignee to do so? The Eleventh Circuit did not reach this question. I did note, however, that the Florida ABC statute requires all ABC agreements to “substantially” adopt the language in the proposed forms accompanying the statute, an indication that, in Florida at least, an assignee for the benefit of creditors could not be granted authority to file a bankruptcy petition on behalf of the assignor.