Waiver of the Bulk Transfer Act

If you are purchasing or selling a firm, you will very certainly be required to comply with or waive compliance with the bulk transfer legislation.

If you are purchasing or selling a company, or assisting a client in buying or selling a business, you will very certainly be required to comply with or waive compliance with the bulk transfer legislation. Should you cooperate or should you opt out? It all depends…

WHAT EXACTLY IS THE BULK TRANSFER LAW?

The bulk transfer law is a piece of legislation designed to safeguard commercial creditors. It states that if a buyer of a firm tells the seller’s creditors in advance that it is purchasing the seller’s assets, the buyer will not be responsible to those creditors for the seller’s debts and obligations. If, on the other hand, a buyer fails to comply with the bulk transfer rules, it is liable to the seller’s creditors once the transaction is completed. If you’re a buyer, it seems like it’s always a good idea to follow the bulk transfer legislation. Correct? No, not always.

HOW TO OBEDIENT

Complying with the bulk transfer legislation is time-consuming:

* The parties must first assess whether the transaction falls within the purview of the bulk transfer statute. A sale of assets is generally governed by the law, although there are exceptions. For example, if the buyer accepts the seller’s obligations, the bulk transfer statute is inapplicable since the creditor has a responsible person to seek collection from.

* The seller is required to provide a list of creditors.

* Both the seller and the buyer must create a schedule of the property that will be transferred to the buyer.

* At least ten days before the transfer, the buyer must inform the seller’s creditors. The notification must adhere to all legislative requirements.

* The buyer is required to register a list of creditors as well as a schedule of property transferred with the County Recorder.

Buyers and sellers commonly agree to waive compliance rather than go through the effort and cost of complying with the bulk transfer regulation. Buyers, on the other hand, will want some protection from the seller if it agrees to waive.

HOW SHOULD BUYERS PROTECT THEMSELVES?

Holding a portion of the purchase money in escrow for a length of time is the greatest strategy to safeguard the buyer from obligation for the seller’s creditors. However, the amount to be held in escrow may only be calculated once the seller has given information about its existing debts and obligations. The sensible buyer would want the seller to guarantee that the disclosures are correct and full.

The buyer may also request that the seller protect it against any future claims made by the seller’s creditors. However, indemnifications are only valuable if the seller has assets and will continue to exist after the sale of those assets.

OTHER BUYER HEART ATTACKS

Even if a buyer follows the bulk transfer regulations, it may still be liable for certain obligations owed by the seller. For example, the buyer will be accountable for the seller’s outstanding sales tax and withholding tax liabilities (including interest and penalties) that accumulated and went unpaid at the time the assets were transferred. The only method for the buyer to avoid culpability is to withhold a substantial portion of the purchase price to cover the taxes.

Furthermore, compliance with bulk transfer rules does not shield the buyer from accountability for any taxes payable to the County Treasurer by the seller. Only a certificate in the form authorised by the Tax Commissioner is capable of doing so. Other obligations, such as tort liabilities, may become the buyer’s duty under a successor liability approach. In the case of real estate, keep in mind the possibility of successor responsibility for environmental issues.

WARNING: BEWARE OF “BULK” BOILERPLATE

Don’t be deceived into believing that sections pertaining to bulk transfer legislation compliance are worthless boilerplate. Unexpected acceptance of seller obligations may turn an appealing business purchase into a financial nightmare.