Delaware’s New ABC Act: A Flexible Bankruptcy Alternative for Startups

On June 10, 2026, Delaware Governor Matt Meyer signed Senate Bill 267 into law, replacing the state's outdated 1875 Assignment for the Benefit of Creditors (ABC) statute. The new act introduces a modern, comprehensive framework for liquidations outside of federal bankruptcy court. This positions Delaware as a key jurisdiction for private and controlled wind-down proceedings Source.

Modernizing an Outdated System

Delaware's previous ABC statute, largely unchanged since 1875, mandated requirements like two appraisals, a bond, and a formal inventory list. The new act eliminates these archaic provisions, establishing a flexible system based on the Uniform Assignment for Benefit of Creditors Act, with Delaware-specific enhancements.

Benefits for Distressed Businesses

For companies struggling with cash flow or seeking an exit, the new Delaware ABC act offers several advantages over traditional Chapter 11 bankruptcy filings:

• Cost-Effectiveness: It is significantly cheaper than a Chapter 11 proceeding.
• Speed and Privacy: The process is faster and more private, as asset acquisitions may be reported by the press rather than a bankruptcy filing.
• Liability Management: Directors and officers can resign when the ABC is initiated, transferring responsibility to an independent fiduciary and potentially reducing D&O exposure.

Key Features of the New Act

Broad Assignee Powers

The act grants broad authority to the assignee, an independent fiduciary responsible for managing the liquidation. This includes the power to operate the business during wind-down, incur debt, hire professionals, sell assets (potentially through court-approved auctions similar to Section 363 sales in bankruptcy), settle claims, and prosecute or defend litigation Source.

Opt-In Court Oversight

While the assignee must file a petition in the Court of Chancery within 14 days, court involvement is largely optional unless specifically requested. This "opt-in" approach helps maintain speed and cost efficiency while allowing for judicial credibility when needed, such as for approving asset sales.

Jurisdictional Focus

The act is designed to prevent "forum shopping" by limiting filings to entities incorporated in Delaware, those with their principal place of business in the state, or certain controlled affiliates. This ensures the act primarily benefits companies with genuine ties to Delaware, which includes many U.S. businesses.

Limitations to Consider

Despite its benefits, the Delaware ABC act has limitations. There is no automatic stay, meaning creditors can continue collection efforts. It is also suitable only for liquidation, not business continuation or reorganization. Unlike Chapter 11, contracts cannot be assumed or assigned without the counterparty's consent. Additionally, creditors retain the right to file an involuntary bankruptcy petition, which can override the ABC process.

Implications for Business Leaders

For Delaware-incorporated distressed companies, the ABC act is now a viable wind-down option. Engaging restructuring counsel early is crucial to assess feasibility, prepare cash flow forecasts, and ensure proper board fiduciary analysis. For those looking to acquire distressed assets, Delaware ABCs can provide 363-style sales without the higher costs of bankruptcy, reducing fraudulent transfer and successor liability risks. Venture-backed and growth-stage companies with no clear path to profitability can use ABCs for an orderly wind-down, returning remaining value to creditors and cleanly ending fund exposure.