Special Proceedings for Assignment of Benefits to Creditors

California Code of Civil Procedure Part 3, Title 11.7 deals with the recovery of preferences and exempt property in an assignment for the benefit of creditors.

Section 1800 defines the following terms: “insolvent,” “inventory,” “insider,” “relative,” “affiliate,” “judicial line,” “new value,” “receivable,” “security agreement,” “security interest,” “statutory lien,” and “transfer.”

In addition, the assignee of any general assignment for the benefit of creditors may recover any transfer of property of the assignor that is all of the five specified items. The assignee may not recover under this section eight types of transfers as specified.

Also, an assignee of any general assignment for the benefit of creditors may avoid a transfer of property of the assignor transferred to secure reimbursement of a surety that furnished a bond or other obligation to dissolve a judicial lien that would have been avoidable by the assignee.

A transfer is made at any of the three specified times. A transfer is not made until the assignor has acquired rights in the property transferred. And, an action by an assignee under this section must be commenced within one year after making the assignment.

Section 1801 states that, in any general assignment for the benefit of creditors, the assignor, if an individual, may choose to retain as exempt property either the property which is otherwise exempt or, in the alternative, the eleven specified types of property.

Section 1802 specifies that, in any general assignment for the benefit of creditors, within 30 days after the assignment has been accepted in writing, give written notice of the assignment to the assignor’s creditors, equityholders, and other parties in interest as set forth on the list provided by the assignor.

In this notice, the assignee is required to establish a date by which creditors must file their claims to be able to share in the distribution of proceeds of the liquidation of the assignor’s assets. And, the assignor must provide to the assignee at the time of the making of the assignment a list of creditors, equityholders, and other parties in interest, signed under penalty of perjury, which has to include specified information.