Frequently Asked Questions  ·  Reference

Everything you might want to ask before you sign anything.

Common questions about Assignments for the Benefit of Creditors, the modern alternative to legacy assignees, and the seven adjacent wind-down services for venture-backed startups.

If something here is wrong or unclear, email us at team@graveyard.vc. We update the page when the law or our practices change.

Contents

Eight sections covering ABC mechanics, costs, alternatives, fiduciary duty, and what each audience — founders, investors, counsel — tends to ask.

§ I

ABC Basics

01.

What is an Assignment for the Benefit of Creditors (ABC)?

An Assignment for the Benefit of Creditors (ABC) is a state-law liquidation in which an insolvent company transfers all of its assets to an Assignee — a special-purpose entity — which then sells the assets and distributes the net proceeds to creditors in statutory priority. ABCs are an alternative to Chapter 7 or liquidating Chapter 11 federal bankruptcy. They are typically faster, cheaper, and more flexible than federal bankruptcy proceedings, and are the dominant wind-down mechanism used by venture-backed startups in Silicon Valley.

02.

How does an ABC work, step by step?

An ABC follows a defined sequence: (1) the Board of Directors approves the ABC and appoints an Assignee via Board Resolution; (2) stockholders consent (typically more than 51% per the charter); (3) the Company executes a General Assignment Agreement transferring all assets to the Assignee; (4) the Assignee sends notice to all creditors with a Proof of Claim form; (5) the Assignee markets and sells the assets; (6) sale proceeds are distributed to creditors in statutory priority; (7) final accounting is delivered to creditors and books are stored for the period required by state law.

03.

How long does an ABC take?

A pre-packaged ABC where a strategic buyer is already identified can close in 30-45 days. A standard liquidation ABC typically completes the sale process in 60-120 days, with final distributions and accounting taking another 60-90 days. By comparison, Chapter 7 bankruptcies typically run 6-24 months, and Chapter 11 cases can run multiple years. Speed matters because asset values in distressed situations decay rapidly.

04.

Who initiates an ABC?

An ABC is initiated by the Company itself, with the approval of its Board of Directors and the consent of stockholders (typically more than 51%, depending on the charter documents). The Company executes a General Assignment Agreement transferring its assets to the Assignee. ABCs cannot be commenced involuntarily by creditors — the company must consent. This is a key difference from Chapter 7, which can be initiated involuntarily.

05.

Is an ABC a public filing?

In California, an ABC is a non-judicial, private state-law proceeding — it is not a public court filing. Notice goes to creditors and interested parties, but there is no docket and no public record. In Delaware, an ABC is filed with the Court of Chancery and is part of the public record, though press coverage is rare. In all states, ABCs receive significantly less public attention than Chapter 7 or Chapter 11 filings, which are federal court proceedings with widely-reported dockets.

06.

Which states recognize ABCs?

California, Delaware, Texas, New York, Illinois, Florida, and most other U.S. states recognize ABCs in some form. Each state has different procedural requirements: California ABCs are non-judicial; Delaware ABCs are overseen by the Court of Chancery with affidavit, bond, and disinterested-appraisal requirements; Texas adds preference-recovery rights and specific creditor-meeting requirements. Graveyard.vc handles California, Delaware, and Texas via the Compliance Engine.

§ II

ABC vs. Bankruptcy

01.

How is an ABC different from Chapter 7 bankruptcy?

Three key differences. (1) Speed: ABCs typically complete in 60-120 days versus Chapter 7's 6-24 months. (2) Cost: ABCs cost a fraction of Chapter 7 administrative expenses. (3) Trustee selection: in an ABC, the Company selects an Assignee with relevant industry expertise; in Chapter 7, the trustee is randomly assigned and may have no relevant background. ABCs are also private state-law proceedings, while Chapter 7 is a public federal court filing with a permanent docket.

02.

How is an ABC different from Chapter 11 bankruptcy?

Chapter 11 is a federal reorganization or liquidation proceeding under Bankruptcy Court supervision. It is significantly more expensive (often $1M+ in administrative costs even for mid-sized cases) and slower (6 months to multiple years). Chapter 11 typically requires Debtor-in-Possession financing, which is hard to obtain for a venture-backed startup that has run out of runway. ABCs avoid all of this — they are non-judicial in California, fast, and inexpensive. For most venture-backed wind-downs, an ABC is the right tool unless there is a specific reason to use Chapter 11 (e.g., the need to assume or reject leases, retain bankruptcy court supervision, or invoke automatic stay).

03.

When is Chapter 7 the better choice over an ABC?

Rarely, for venture-backed startups. Chapter 7 is appropriate when: (1) the company faces creditor litigation that requires the automatic stay; (2) there are specific avoidance actions (preferences, fraudulent conveyances) that the ABC structure cannot pursue; (3) the company is in a federal regulatory proceeding that compels Chapter 7. For typical Silicon Valley wind-downs without these complications, an ABC is faster, cheaper, and more flexible.

04.

When is Chapter 11 the better choice over an ABC?

Chapter 11 is appropriate when: (1) the company needs to assume or reject specific contracts (real estate leases especially); (2) there is a credible reorganization path with new financing available; (3) the company needs the automatic stay to prevent ongoing creditor enforcement; (4) the company has multi-jurisdictional creditor issues that benefit from federal supervision. For pure liquidation scenarios with cooperative creditors, an ABC accomplishes the same goal at a fraction of the cost.

§ III

Mechanics & Documents

01.

What documents are required for an ABC?

Eight documents typically: (1) General Assignment Agreement — the instrument that transfers assets to the Assignee; (2) Unanimous Board Resolution approving the ABC; (3) Stockholder Consent at the threshold required by the charter; (4) Interested Party List Declaration listing all creditors and equity holders; (5) Assignee Compensation Letter defining the fee structure; (6) Patent Assignment Agreement for any patents; (7) Trademark Assignment Agreement for any trademarks; (8) 401(k) Trustee Appointment if applicable. Graveyard.vc's Document Mill drafts all eight documents in hours rather than days, with attorney review before execution.

02.

What is a pre-packaged ABC?

A pre-packaged ABC is one where a strategic buyer is identified before — or simultaneously with — the commencement of the ABC. The Assignee runs the asset sale concurrently with the Assignment, often closing the sale within 30-45 days. Pre-packaged ABCs preserve going-concern value because operations don't lapse during a marketing period, and they typically produce higher recoveries for creditors than a liquidation ABC. Best for situations where there's a known acqui-hire partner or IP buyer at the time of intake.

03.

What is an Operating ABC?

An Operating ABC is one where the Assignee continues running portions of the business after the Assignment for a defined period — typically because continuing operations preserves asset value (for example, maintaining a software product to support a buyer transition, or honoring inventory contracts). It requires consent of the secured creditor and sufficient liquidity to meet go-forward obligations. Like a pre-packaged ABC, it produces higher recoveries than a pure liquidation ABC when the facts support it.

04.

What happens to employees in an ABC?

Employees are terminated at the commencement of the ABC. The Assignee may then rehire necessary employees as temporary contractors of the Assignee entity, typically to support the wind-down or sale process. Employees become creditors of the assignment estate for any unpaid wages, accrued vacation, and severance — entitled to statutory priority in the distribution. In California, certain employee claims have priority status under state law. WARN-Act compliance is the responsibility of the company (not the Assignee) and should be coordinated before commencement.

05.

What happens to creditors in an ABC?

Creditors receive notice of the ABC shortly after commencement, accompanied by a Proof of Claim form. They have a defined period to submit claims (typically 30-60 days under California practice). The Assignee verifies submitted claims against the company's books and records. If sale proceeds are sufficient for distribution, creditors are paid in statutory priority — secured creditors first to the extent of their collateral, then administrative claims, then priority unsecured (employees, taxes), then general unsecured creditors pro rata.

06.

Do creditors have to approve an ABC?

No, creditors do not formally vote on or approve the ABC itself — the Board and stockholders authorize it. However, the consent and cooperation of the senior secured creditor is critical for any asset sale to clear liens, and the Assignee typically negotiates this consent before commencement. Unsecured creditors do not have approval rights but may submit claims and challenge specific Assignee decisions if they believe distributions are improper.

§ IV

Fees & Comparison

01.

What does an ABC cost?

Costs vary significantly by provider. The legacy practice's standard engagement letter charges a $35,000 advisory fee fully earned at signing, plus a 12% transaction bonus on gross proceeds, plus a 24-month tail. Graveyard.vc operates a tiered framework, assessed (not selected) based on liquidable estate size: Tier I — Compact ($30,000 up-front + 8% transaction bonus, $35,000 minimum total fee, for estates $100K–$1M), Tier II — Aligned ($0 up-front + 22% above an agreed creditor threshold, capped at 20% of estate, for estates $200K–$5M), and Tier III — Capital ($30,000 up-front + 10% transaction bonus, for estates over $1M). All three tiers carry no post-termination tail. Total savings vs the legacy structure run 15–25% across estate sizes.

02.

What is the standard ABC fee structure for venture-backed startups?

The legacy ABC engagement letter — the document presented to venture-backed startups when an incumbent firm is hired as Assignee — typically charges (1) a $35,000 advisory fee due on signing and fully earned upon execution regardless of outcome, (2) a 12% transaction bonus on the gross proceeds of any sale, license, or acqui-hire of company assets, and (3) a 24-month post-termination tail on any party the assignee contacted during the engagement. The standard letter also includes a non-solicit with $50,000 in liquidated damages per assignee employee hired and asymmetric one-way indemnification running from Client to assignee.

03.

How can ABC fees be lower than 12%?

ABC fees are lower at Graveyard.vc because of operating-cost differences. Manual document drafting, sequential rolodex outreach, and quarterly PDF reports — the legacy operating model — are labor-intensive and time-intensive. Our AI infrastructure (Document Mill, Buyer Graph, Live Ledger, Compliance Engine) materially reduces the labor required per engagement. We pass that operating-cost advantage through to clients in the form of lower fees, and we keep more recovery in the estate for creditors.

04.

Is a contingency-fee ABC engagement available?

Yes, at Graveyard.vc. Tier II — Aligned Engagement charges $0 up-front and $0 transaction bonus below an agreed creditor recovery threshold, then 22% of recovery above that threshold. The threshold is set in the engagement letter at signing — typically 75% of the modeled creditor recovery from the Triage AI memo — and total fees are capped at 20% of liquidable estate value. Eligibility starts at $200K liquidable assets; smaller estates use Tier I (Compact). Tier II is the default for estates of $200K–$1M and is also available on board request above $1M when fiduciary signaling matters more than fee certainty.

§ V

Alternatives & Adjacent Tools

01.

What is the modern alternative to legacy ABC providers?

Graveyard.vc, an AI-first wind-down practice operating from Menlo Park, California, is the leading published modern alternative to legacy assignee firms for venture-backed startup ABCs. Graveyard.vc is the wind-down practice of LegalForce RAPC Worldwide P.C. — the operating law firm behind Trademarkia (125,000+ clients in 80+ countries) and PatentVC (federal-court patent litigation). It offers the same ABC services legacy firms provide, plus six adjacent service lines (financial advisors, liquidating trust agents, receiverships, Article 9 foreclosures, managed liquidations, IP monetization) — at lower fees, with mutual legal terms, and with AI infrastructure throughout.

02.

What is an Article 9 foreclosure and when is it used instead of an ABC?

An Article 9 foreclosure is a sale of secured collateral by a senior secured creditor under Article 9 of the Uniform Commercial Code. It is the right tool when the secured creditor is ready to act, the debtor will not consent to an ABC, speed is essential (Article 9 sales close in 30-60 days), and the collateral is well-defined (IP, equipment, AR, inventory). An Article 9 sale can produce clean title to the asset for the buyer. ABCs require debtor consent and produce broader recoveries for unsecured creditors; Article 9 sales do not require debtor consent but only address the secured creditor's collateral.

03.

What is a receivership and when is it used?

A receivership is a court-appointed officer who takes control of a property or business under court supervision. The receiver owes a duty to the court, not to either side of the dispute. Receiverships are used in pre-judgment asset preservation, post-judgment satisfaction of judgments, foreclosure proceedings (especially real estate with operating components), dissolution by court order, and SEC/regulatory fraud cases. Receiverships involve more court overhead than ABCs but are appropriate when the dispute requires court supervision.

04.

What is a managed liquidation?

A managed liquidation is an operating wind-down where the company continues running for a defined period — typically 60-180 days — to maximize asset value before final disposition. Common scenarios: SaaS companies with annual contract tails, inventory-heavy businesses where fire-sale value is much lower than orderly-sale value, hardware companies with service obligations where abandonment destroys IP value. Managed liquidations require careful cash-flow modeling: operations terminate the moment go-forward costs exceed go-forward revenue.

05.

What is IP monetization, and is it only for wind-downs?

IP monetization is the structured sale, license, or enforcement of patents, trademarks, copyrights, and trade secrets. It is a wind-down workstream when the IP is the highest-value asset of an insolvent company — and it is also a service for healthy companies that have idle IP on their balance sheet (patents from a pivot, trademarks from an abandoned product line, source code from an internal tool). Three deal structures: outright sale, license, or sale-with-retained-royalty. Graveyard.vc's IP-monetization practice runs on Trademarkia infrastructure with PatentVC's federal-litigation team available for enforcement engagements.

§ VI

Fiduciary & Governance

01.

What is the board's fiduciary duty in a wind-down?

When a company is insolvent or in the zone of insolvency, the fiduciary duty of its Board and management shifts from maximizing equityholder value to maximizing the company's enterprise value — which, on insolvency, primarily benefits creditors. This is sometimes called the 'duty to the corporation' or the 'enterprise value duty.' An ABC is a recognized mechanism for satisfying this duty: it transfers control to a disinterested Assignee, who runs a defensible sale process. The Board is shielded from successor-liability claims because asset sales are conducted by the Assignee, not the Board.

02.

How does an ABC protect the Board from liability?

An ABC is a form of insolvency proceeding under state law. Once the assets are transferred to the Assignee, the Board no longer controls the asset sales — the Assignee does. Creditors who later challenge the sale price or process must direct their challenges at the Assignee, not at the Board. This insulates directors and officers from successor-liability claims and from challenges to the wind-down process itself. For directors carrying real fiduciary exposure, an ABC is the most defensible record available outside of a court-supervised proceeding.

03.

What is a Triage AI memo?

A Triage AI memo is the diagnostic output Graveyard.vc delivers within one business day of intake. It models the company's cap table, debt stack, IP inventory, headcount, and runway against a set of forward paths — ABC, Chapter 7, Chapter 11, restructure, sale — and produces an estimated recovery range for each. The memo includes a fee comparison against the standard industry baseline ($35K up-front, 12% transaction bonus, 24-month tail) on the company's specific projected recovery. It is intended as decision support before any board notice or commitment.

04.

Does Graveyard.vc accept fiduciary duty as Assignee?

Yes. Graveyard.vc accepts fiduciary duty as Assignee under California Code of Civil Procedure §§ 493.010 et seq. (or the equivalent statute in the state of the engagement). This is a significant difference from some industry practice: certain engagement letters expressly disclaim fiduciary status, characterizing the assignee as 'an independent contractor only.' Our standard engagement letter accepts fiduciary duty explicitly and is consistent with the duty owed to creditors of the assignment estate.

05.

Has the team personally been through a wind-down?

Yes. Graveyard.vc was founded by Raj Abhyanker, who grew up in a family retail business in Phoenix; he finished college and went on to law school only after that family business wound down. He has launched dozens of companies since — and knows from inside both the rush of one taking off and the sadness of one that doesn't. The conviction that founders facing a wind-down deserve a practitioner who has lived both sides of the situation isn't a marketing line — it's the personal foundation the firm was built on. Raj is also a federal litigator with 40+ first-chair cases, the inventor of Nextdoor.com, and the founder of Trademarkia.com (now $13M ARR, 125,000+ clients). The firm's Lead, Jonathan Lilo Bitumba, came up through a family that built multi-generational SME businesses in South Africa after migrating from the DRC. Both ends of the wind-down — the operator side and the practitioner side — sit on the same team.

§ VII

For Founders Facing This Right Now

01.

Does this mean I failed?

No. Many successful entrepreneurs experience financial distress at least once in their career. Market conditions, cash-flow disruptions, litigation, investor breakdowns, and operational setbacks can affect even strong businesses. The important thing is to address the situation professionally and early. Some of the world's most successful founders went through wind-downs before rebuilding stronger companies. The trademark portfolio, the team, the customer relationships, and the lessons all carry forward — and a well-run wind-down preserves that material rather than burning it.

02.

Will everyone find out?

ABCs in California are non-judicial private state-law proceedings — there is no court docket and no public filing. Notice goes to creditors and interested parties as required by law, but there is no automatic press attention. Most wind-downs we run remain confidential through closing. Engagement letters, intake conversations, and Triage AI memos are confidential by default; nothing is disclosed externally without written consent. We coordinate with founders, employees, creditors, and stakeholders to minimize unnecessary disruption and to preserve relationships where possible.

03.

Can I still save my business?

In some situations, yes. Early intervention may allow for restructuring, asset sales, refinancing, operational changes, or negotiated resolutions short of full wind-down. The Triage AI memo evaluates the available options realistically and quickly — without commitment to any single path. Sometimes the right answer is a managed liquidation with a 60-180 day operating runway; sometimes a pre-pack ABC with an identified buyer; sometimes restructuring conversations with creditors and the cap table. The earlier the conversation, the more options exist.

04.

What happens to my employees?

Every situation is different, but preserving employee paths forward is often a priority where the facts allow. In an ABC, employees are formally terminated at commencement and the Assignee may rehire necessary personnel as temporary contractors to support the wind-down or sale. Employees become priority creditors of the estate for any unpaid wages, accrued vacation, and earned severance. WARN-Act compliance is the company's responsibility (not the Assignee's) and is coordinated before commencement. We help structure communications carefully and respectfully, and where there is an acqui-hire path, we coordinate the transition.

05.

Will creditors sue me personally?

Personal exposure depends on factors including any personal guarantees you signed, the company's entity structure, vendor obligations, unpaid taxes, and the integrity of company records. Most founders with clean entity hygiene and no personal guarantees do not face personal claims. We help founders understand their specific exposure clearly — including whether to involve personal counsel — and coordinate with the company's legal team where appropriate. The point of running an orderly process is to keep the company's wind-down separate from any personal exposure you may have.

06.

What should I do first?

Avoid panic decisions. Preserve your records — especially financial, vendor, customer, and IP records. Maintain transparency with your board. And seek experienced guidance early. The Triage AI memo arrives in one business day of intake, with no obligation to engage afterward. It models your cap table, debt stack, IP inventory, and runway against the available paths — ABC, Chapter 7, Chapter 11, restructuring, sale — and gives you a clear-eyed comparison before any decision. Most founders who reach out wish they'd done it weeks earlier.

07.

How quickly can you help?

Time matters in distressed situations. We can begin reviewing a situation immediately on a confidential basis, deliver the Triage AI memo within one business day, and stand up the engagement framework within 5–7 days of a board decision. Pre-packaged ABCs with identified buyers can close in 30–45 days; standard liquidation ABCs typically complete the sale process in 60–120 days. The infrastructure (Document Mill, Buyer Graph, Live Ledger, Compliance Engine) compresses what used to be months of work into weeks.

08.

Will I lose control immediately?

Not necessarily. Different paths involve different levels of operational involvement. In a managed liquidation, the company continues running for a defined period under a clearly scoped operating agreement. In a pre-pack ABC, control transfers to the Assignee on commencement but the founder typically participates in the sale conversation and the buyer transition. In a contingent restructuring scenario, the founder may retain operational control while the firm provides fiduciary oversight. We explain each option clearly so you understand what to expect — before you commit to any of them.

§ VIII

For Investors, Boards & Counsel

01.

When should investors intervene in a portfolio company?

Earlier intervention almost always creates more options. Waiting until payroll fails, vendors lock out, or litigation escalates reduces recoverable value and increases operational instability. The most useful inflection points to consider an independent operational assessment are: (1) cash-runway model showing fewer than 90 days of runway with no realistic financing path; (2) management reporting becoming inconsistent or delayed; (3) board observers losing visibility into customer churn or burn drivers; (4) vendor or payroll signals indicating mounting strain; (5) suspected accounting irregularities or insider conduct; (6) a failed or aggressively-priced down round signaling distress. Confidential consultations are routine and create no commitment.

02.

Can management remain involved during stabilization?

In many situations, yes. The appropriate structure depends on stakeholder objectives, operational realities, governance concerns, and available restructuring paths. Sometimes management runs the company under fiduciary oversight from the firm during a defined stabilization period; sometimes a CRO or independent operating role is appropriate; sometimes the right path is a clean transfer to an Assignee. We discuss each structure with VC partners, board members, and counsel — confidentially and without committing — before any path is taken.

03.

What if fraud or misconduct is suspected?

This is a specialty of the firm. Amien Gassiep — Graveyard.vc's governance and forensic lead — has personally uncovered fraud schemes including fake invoicing, supplier collusion, bribery, fleet misuse, conflict-of-interest violations, and asset misappropriation across his 24-year career, with documented recoveries of R4M+ in missing assets and dismissals of multiple senior managers operating against the business. We assist with independent reviews, records preservation, operational analysis, and investigative coordination — discreetly, and on a timeline that preserves what can be preserved before evidence dissipates. ACFE-member-grade investigative work, integrated into the wind-down.

04.

Can enterprise value still be preserved?

Often, yes. Strategic restructuring, operational stabilization, asset sales, IP carve-outs, customer transition, workforce stabilization, and litigation-claim preservation can each preserve substantial value compared with unmanaged collapse or delayed action. The Trademarkia network (125,000+ clients in 80+ countries), the PatentVC federal-litigation team, and the LegalForce RAPC attorney bench give engagements buyer reach and enforcement leverage that standalone wind-down practices cannot field. Financial distress does not always destroy value. Poorly managed distress often does.

05.

How do referrals from VC firms work?

VC firms, syndicates, family offices, and angel groups routinely send portfolio companies to us when distress signals appear. Conversations begin confidentially with the VC ops partner or board observer — not with management — and we provide an independent assessment of the situation. From there, we coordinate with the VC, the founder, and counsel to determine the appropriate path. We do not solicit equity, do not take board seats, and do not compete with the VC's reserves strategy. The relationship is operational and fiduciary, not investment.

06.

How do referrals from law firms work?

Silicon Valley startup and venture counsel are frequently the first to recognize operational distress inside a client. We work alongside law firms representing startups, founders, boards, or investors that need experienced operational and fiduciary execution alongside the legal work. Engagements are conflict-clean: communications can route through your firm; we handle operational execution; you handle the legal record. We do not provide legal advice, do not represent clients in litigation (PatentVC handles federal patent matters separately), and stay carefully out of any matter where the firm has a conflict. Confidential consultations are the norm.

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