Meaning
Statutory protections safeguard the interests of business creditors during the transfer of substantial corporate assets outside the ordinary course of business. When a company intends to sell its inventory, the bulk sales act requires the buyer to secure a list of the seller’s creditors and notify them of the pending sale. This procedure prevents business owners from selling their equipment or stock and disappearing with the proceeds.
Creditor Notice
Information sharing forms the foundation of this statutory compliance. Under the bulk sales act, the purchaser must demand a sworn list of creditors. This list must be obtained before the transfer.
Purchaser Liability
Failure to comply leads to severe legal consequences for the buyer of the assets. If the transaction violates the bulk sales act, the purchase is deemed fraudulent or void against the seller’s creditors. The buyer becomes personally liable to those creditors for the value of the acquired goods.
Transaction Compliance
Acquisition agreements must incorporate specific clauses to address these potential liabilities. Parties often choose to waive compliance with the bulk sales act if the seller provides an indemnity or demonstrates strong financial health. This waiver is accompanied by an escrow agreement to set aside sufficient funds for any claims.
