2025 Asset Liquidation Agreement (ALA) Explained: Costs, Benefits, and How It Works

Adam Hayes, Ph.D., CFA, is a seasoned financial expert with over 15 years of experience on Wall Street as a derivatives trader. He specializes in economics and behavioral finance and holds advanced degrees from The New School for Social Research and the University of Wisconsin-Madison. Adam is also a CFA charterholder and licensed FINRA professional. Currently, he teaches economic sociology and finance at Hebrew University in Jerusalem.

What Is an Asset Liquidation Agreement (ALA) in 2024?

An Asset Liquidation Agreement (ALA) is a legally binding contract between the Federal Deposit Insurance Corporation (FDIC) and a third-party company tasked with managing the sale of assets from a failed financial institution. This agreement defines the responsibilities, fee structures, and scope of asset management for the liquidation process.

Originally developed during the 1980s savings and loan crisis, ALAs ensure a swift and orderly resolution of bank failures by maximizing asset recovery value while protecting depositors and the federal insurance fund.

Key Highlights

• ALAs outline clear terms for contractors handling distressed assets from failed banks.
• The FDIC sets the terms to facilitate efficient asset sales, safeguarding economic stability.
• Since their inception in the 1980s, ALAs have evolved to support various business dissolution scenarios.

How ALAs Work: A Closer Look

During the 1980s, the U.S. faced a major crisis with over 1,000 savings and loan institutions collapsing. The FDIC responded by crafting ALAs to quickly liquidate assets and minimize losses. These agreements empower contractors to sell distressed assets at the best possible prices, maximizing net cash flow recovery for the FDIC.

Modern Applications Beyond Banking

Today, ALAs are also widely used by business owners to dissolve partnerships or facilitate partner exits. This process involves filing dissolution statements with the Department of Treasury and county clerk offices, along with public notices announcing the liquidation.

Fee Structure and Incentives

Initially exclusive to bank-affiliated asset managers, ALAs now allow private asset management firms to participate. Contractors are reimbursed for overhead costs, including taxes, legal fees, and reporting expenses. A significant portion of compensation comes from incentive fees, which increase based on the level of net asset collections achieved, motivating efficient and profitable asset liquidation.

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