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comment thereto). Because the bank’s lien was perfected some 4 years before the ABC was executed, absent
a special rule, the security interest would trump the assignee’s claim for compensation.

After surveying various legal provisions, the court said that an assignee cannot be required to forgo
the payment of the reasonable fees and costs of administering the assignment until perfected security
interests have been fully satisfied because “if assignees were required to forego
payment in favor of perfected security interests, no assignee would take on the task of
liquidating assets, and assignments for the benefit of creditors would cease to be
available as an efficient method of maximizing the liquidation value of troubled
companies”. Noting the common-law basis for ABCs, the court reasoned that “[i]f the
General Assembly, in enacting the U.C.C., had intended to foreclose this common-law
right, it would have, in our view, clearly and explicitly set forth in the statute that a
perfected secured creditor such as First Bank has priority over the assignee’s right to
fees and expenses.” Because the legislature did not so stipulate, the court found that
the assignee was entitled to compensation from the assets subject to the bank’s prior lien.

Several observations inspired by this decision can be offered.
First, the decision easily could have gone the other way, and in the long term may
be held incorrectly decided. The court’s reasoning that the statute should have been
explicit if it intended to override ABCs is reminiscent of the doctrine under which statutes
in derogation of the common law are strictly construed – but by statute the U.C.C. is to
be liberally construed (810 ILCS 5/1-103(a)).
Second, nothing in First Bank changes the fact that ABCs generally will only
work with entities. This is because a key difference between ABCs and bankruptcy is
that bankruptcy results in a discharge of debt but ABCs do not. The discharge is critical
for individuals, because they live on after insolvency and need its protection. In
contrast, Chapter 7 results in no discharge for a corporation but contemplates that the
corporation will simply be dissolved at the end of the bankruptcy.

Third, because no discharge of debt occurs, the advantage of an ABC over a bankruptcy may be modest
when the debts have been guaranteed by individuals. If the individuals must be put through bankruptcy
anyway, the incremental cost and trouble of a related corporate bankruptcy may be minimal.
Fourth, First Bank illustrates that there are advantages to bankruptcy besides the discharge – including,
perhaps most importantly, the automatic stay. ABCs contemplate an out-of-court process with the
assignee in charge – but the assignee can impose no sanction if, as in First Bank, a creditor chooses
to go to court instead. The assignee is left to ask the court to enforce his or her rights – which generally it
will do, but the simplicity and efficiency of the out-of-court scheme can be lost.
Fifth, First Bank does nothing to assuage the dislike which junior creditors may find with the ABC process.
Unlike bankruptcy, the threat of criminal prosecution does not hang so clearly over the head of a debtor who
executes an ABC, and the assignee is unlikely to give potential preferences, hidden assets and fraudulent
transfers the attention which they would receive in bankruptcy. That the assignee is selected by the debtor
also presents questions of disinterestedness and disincentive to question the debtor’s account. Bankruptcy,
with all its problems, thus may bring a degree of credibility to the process which an ABC may not.

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