The ABC’s of Cannabis and Coronavirus: Even without federal aid, there are options.

By Dustin Robinson and Zachary Hyman

This article is featured in the eBook, Pivot Under Pressure: A Comprehensive Guide to Minimize Impact and Revitalize Your Small Business, which is available at https://millenniallaw.com/pivot/

 

The Coronavirus has impacted many businesses and industries, including the Cannabis industry.  The Coronavirus closures and government regulations concerning the distribution of Cannabis has created uncertainty as it relates to the future of the industry. To make matters worse, federal funding is not available, and Cannabis companies cannot file for bankruptcy. However, Assignment for the Benefit of Creditors (or “ABC”) state statutes, such as Florida Statute Section 727.104, provide an affordable alternative to bankruptcy that permits business owners to close while limiting your potential liability.

The ABC proceeding is commenced with the execution of an irrevocable assignment in writing.  Upon execution of this assignment, the party receiving the assignment receives control over a “legal estate” comprising of all of the assets of a business, and the assignor (or business) loses power and control over its property. Then, the assignee, or neutral third party who is responsible for marshalling and selling the assets of your business, commences an assignment proceeding. Generally speaking, an ABC is an efficient, relatively economical, and faster means for the administration of insolvent estates in Florida, and remains a viable alternative to Bankruptcy, especially if bankruptcy is not available to a company.

Below is a summary of what an assignment for the benefits entails, and how it can benefit your business.

1. You get to choose the assignee. Pursuant to Fla. Stat. § 727.104, the people or entities in control of a business can select the assignee, or the person that will be managing the liquidation process, which gives flexibility in the approach to be taken with respect to your company, and the assignee can operate your business during the pendency of the ABC process.
2. ABCs Limit Liability. An assignee has the right to reject real and personal property leases, and may be required, at a maximum, to only pay back rent and future rent not to exceed the greater of one year’s rent or fifteen percent of the rent remaining, and rent must be charged at the contract rate. Damages arising from the termination of employment agreements are also limited.
3. Unsecured Creditors Cannot Pursue Collection Efforts. An unsecured creditor, such as a credit card company, or a creditor that does not have a security interest in your businesses’ assets, is prohibited from commencing any claims against your business, and must file a proof of claim in the Assignment of Benefits Case. As a result, all of the claims against your business, with the exception of secured claims, mortgages or other claims where a creditor has a security interest in your business’ property, must be heard and addressed in a single forum.
4. The Assignee Can Assign and Prosecute Claims. The Assignee can assign and prosecute claims on behalf of your business, and certain legal defenses to such claims, such as claims based on your participation in the wrongdoing, do not apply to an assignee. This means the assignee can sell potential claims on behalf of your business at a higher value to creditors.

The ABC process provides business owners, for whom bankruptcy is not available, because they are in the Cannabis industry or cannot afford the process, a mechanism to close their company and limit potential liability from creditors. If your business is struggling, then the ABC process may be a viable solution to your financial distress. Consult with an attorney or financial advisor to see if the ABC process is appropriate for you and your business.