Chancery Court Says Compliance With Delaware’s ABC Statute Isn’t Optional

Delaware’s ABC statute (Assignment for the Benefit of Creditors) consists of just seven sections. In a recent case, the Chancery Court found that the Assignee had violated at least three of those sections, writes Squire Patton Boggs attorney Michelle Saney.

In 2023, WMT LLC, the Assignee, filed an assignment stating that it had entered into an assignment agreement with WindMIL Therapeutics, Inc., the Assignor.

WMT also filed two purported valuation opinions. One was stamped “draft” from Redwood Valuation Partners. It was dated November 21, 2023 and valued the intellectual property assigned to the Assignee at $409,000. The other was an appraisal prepared by Braun Co. dated one day later that offered a speculative $100 value on the intellectual property. 

Several months later the Assignee filed a motion seeking an order retroactively appointing Redwood and Braun as appraisers. That same day it asked the Chancery Court to fix a bond for the value of the assets, as required by statute, at $152,000. It requested the Court to ignore Redwood’s draft appraisal.

The Chancery Court determined that the Assignee had violated the section that required the submission of an affidavit of inventory within 30 days of the assignment agreement being executed. The Assignee also attempted to retain appraisers and obtain appraisals without first seeking authorization. 

According to the statute, the bond is supposed to be determined after the appraisals are submitted, but the Assignee sought approval of a bond at the same time as appointing appraisers. As a result, the petition was dismissed due to non-compliance with Delaware’s ABC statute.

The author says that although a Delaware ABC proceeding may be less onerous than liquidation under Chapter 7, the statute has its own requirements, and compliance is enforced. Failure to comply may leave Chapter 7 as the only liquidation alternative.