Colorado's New Business Life Raft: A Faster, Cheaper Alternative to Federal Bankruptcy

The Bottom Line

If a business goes belly up, federal bankruptcy isn't the only way to settle debts. This bill standardizes a state-level "Assignment for the Benefit of Creditors" process, giving struggling business owners a potentially faster way to liquidate assets and giving creditors clear rules for getting their money.

What This Bill Actually Does

When a business fails, federal bankruptcy (like Chapter 7 or 11) is the most famous route, but it is notoriously expensive, slow, and public. An Assignment for the Benefit of Creditors (ABC) is a state-level alternative that happens largely outside of a courtroom. SB26-079 aims to standardize this process in Colorado by enacting the Uniform Assignment for Benefit of Creditors Act. It allows a struggling debtor (the assignor) to voluntarily sign over all their assets to an independent third party (the assignee). That assignee then takes over, liquidates everything, and distributes the cash to the people owed money (the creditors).

The bill lays down strict guardrails to keep the process fair and transparent. The assignee must be completely independent—no insiders, family members, affiliates, or current creditors are allowed to run the show. Once appointed, they have a strict fiduciary duty to maximize the payout for creditors. The struggling business owner has to hand over everything, including bank accounts, property, and a verified list of creditors under penalty of perjury. In return, the assignee gets broad powers: they can operate the business temporarily to maintain its value, incur debt to keep it afloat during a transition, break leases, sell off assets, and even claw back sketchy transfers made right before the collapse.

For the folks owed money, the bill creates a predictable, standardized timeline. The assignee has 30 days to notify all known creditors that the liquidation process has started. Creditors then have exactly 120 days to submit a proof of claim to get in line for payment. The assignee must send financial updates at least every six months so no one is left in the dark, and eventually, they issue a final public accounting once all the assets are distributed and the estate is closed.

What It Means for You

As a regular Colorado resident, you might not think corporate liquidation affects you—until your employer suddenly closes shop, or your general contractor goes under halfway through your kitchen remodel. If a company you deal with uses this new ABC process instead of simply vanishing into the night or dragging through federal bankruptcy court, this bill gives you a specific, predictable way to try and recover what you are owed.

If you are an employee owed back wages, or a consumer who paid a large deposit for services never rendered, you automatically become a creditor. Under this proposed law, you wouldn't necessarily have to hire a lawyer to figure out where the money went. The independent assignee is legally required to track you down within 30 days of taking over, using the defunct company's internal records. They will send you an official notice with instructions on how to file your proof of claim. It is critical that you pay attention to the mail: you have a hard deadline of exactly 120 days from the effective date of the assignment to file that paperwork. Miss it, and you could lose your right to collect entirely.

The biggest takeaway for consumers and workers here is transparency. Historically, informal business liquidations can feel like a black box where the money just disappears and the owners walk away. This bill requires the assignee to send you a financial summary every six months, showing exactly what assets are left, what has been sold, and what the administrative expenses are. While there is no guarantee you will get 100 cents on the dollar—that always depends on what the defunct business actually has left to sell—you are guaranteed regular updates and a fair, mathematically driven place in line.

What It Means for Your Business

For Colorado business owners, this legislation is a massive piece of financial infrastructure. Whether you are the one struggling to keep the lights on, or you are a vendor trying to collect from a failing client, SB26-079 rewrites the playbook. If your business hits the wall, an Assignment for the Benefit of Creditors offers a quieter, often faster alternative to federal bankruptcy. You voluntarily hand the reins to an independent professional who handles the messy work of selling off assets and dealing with angry vendors. However, you must surrender everything and verify your asset and creditor lists under penalty of perjury.

If you are on the other side of the table—say, a supplier, a subcontractor, or a commercial landlord—this bill dictates exactly how you collect from a dying company. You need to train your accounting department to watch for an official notification of assignment. Once you receive it, the clock starts ticking: you have 120 days to submit your claim. Miss that deadline, and your claim could be disallowed entirely, leaving your business to absorb the loss. The bill also gives the assignee the power to scrutinize claims, dispute them, and even claw back payments the failing company made to you right before the collapse (similar to federal bankruptcy preference claims).

There is also a distinct opportunity here for certain business professionals. If you run a turnaround consulting firm, a specialized accounting practice, or a liquidation business, this bill formalizes your industry. You could be hired as the assignee, earning fees paid directly from the assignment estate. But be aware: the bill attaches strict personal liability to that role. If you breach your fiduciary duty to the creditors by mismanaging the assets, you are personally on the hook. You are required to maintain separate trust accounts, provide bi-annual reporting, and execute a final public accounting when the estate is wound up.

Follow the Money

From a taxpayer perspective, this bill is practically free. According to the state's fiscal note, standardizing the Assignment for the Benefit of Creditors process doesn't require any new state appropriations. Because these assignments are primarily handled privately between the assignor, the assignee, and the creditors, it doesn't create a massive new government bureaucracy or regulatory board.

There will be a minimal increase in workload for the state's judicial system, as trial courts may be asked to intervene if an assignee breaches their fiduciary duty or if a creditor disputes how assets are being handled. However, the Judicial Department expects to absorb these rare cases within their existing resources. Any slight uptick in civil lawsuits would also generate a tiny bit of revenue from standard court filing fees, but it is essentially a wash for the state budget.

Where This Bill Stands

SB26-079 is currently Dead. The latest official action came on 02/26/2026: Senate Committee on Business, Labor, & Technology Postpone Indefinitely.

That means the bill is no longer advancing this session. In practice, measures that are postponed indefinitely or otherwise declared lost generally stay dead unless they are reintroduced in a future session.