Define the following terms: (4) assignment

Explanation

In an assignment, the company decides to sell its assets to repay the creditors. The company decides to sell its assets when the firm's assets are worth more than the business' going concern value. In this process, creditors can receive more of their claims than they would in a formal bankruptcy process. The legal bankruptcy procedure involves huge costs, and the trustee has no flexibility in selling the asset, which leads to receiving less amount on selling the assets.

Verified Answer

The assignment is an informal liquidation process where the company decides to sell the firm's assets when the firm's assets are worth more than they would if the business were alive. The company chooses liquidation through assignment because it is a cheaper mode of liquidation than formal bankruptcy, which involves huge costs.