Enables most creditors of an assignor to participate in the distribution of the assignor's estate

Title of bill

An act to amend the debtor and creditor law, in relation to an assignment for the benefit of creditors

Summary of bill

The bill would amend section 13 of the Debtor and Creditor Law to eliminate the concept of a "provable claim" and enable most creditors of an assignor for the benefit of creditors to participate in the distribution of the assignor's estate. It would amend the limitation on the right of a lessor of real property to participate in the distribution in order to conform that limitation with a similar one in the bankruptcy code. It would limit the right of an employee to recover under a long term employment contract, and require the estimation of contingent and unliquidated claims.

The bill would also permit the assignee:

(a) to avoid certain pre-assignment setoffs if the creditor substantially improved its position prior to assignment,

(b) to avoid transactions avoidable by an actual unsecured creditor of the assignor and

(c) to avoid transactions and liens avoidable by a lien creditor of the assignor or a bona fide purchaser of real property from the assignor, whether or not such a lien creditor or bona fide actually exists.

The bill would conform the preference avoidance power more closely with the similar bankruptcy power, and would permit avoidance of preferential judicial liens as well as voluntary transfers. The bill would preserve for the benefit of the estate any avoided liens. Finally, the bill would update the provision governing priorities in the distribution of the assignor's estate and would require payment of priority wages owing directly to an employee before payment to any benefit plan for the benefit of the employee.

Justification

The assignment proceeding is a state law version of bankruptcy. The last major revision in this portion of the Debtor and Creditor Law occurred in 1950 and was largely intended to conform the assignment proceeding more closely with the bankruptcy law. Since that time there has been a major overhaul of the bankruptcy law, reflecting years of study to modernize that statue. This bill adopts some of the more beneficial changes in the federal law, and permits the assignment statute to continue to closely track the bankruptcy law where appropriate. By permitting more creditors to participate in the distribution of the assignor's estate, the statute would be fairer to claimants who were previously excluded for no justifiable reason.

In addition, debtors are better protected by the revised setoff section against being driven prematurely into an insolvency proceeding by a creditor who elects to set off its claim against a debt owed to the debtor. In general, the amended avoidance powers would enable the assignee to more equitably distribute limited assets among the creditors, and to reduce the advantage of creditors who failed to follow rules for perfecting or recording interests, or who otherwise unfairly transacted with the assignor to improve their positions at the expense of other creditors. Finally the bill would increase the protection for employees of an assignor and for individuals who, prior to the assignment, made deposits for goods or merchandise.

Fiscal implications

None.

Effective date

Immediately.