Frequently Asked Questions

How can a buyer protect themselves from the seller's creditors under the bulk transfer law?

The Bulk Transfer Law is designed to protect business creditors, but it also offers ways for buyers to protect themselves from the seller's creditors. To comply with the law, the buyer must notify the seller's creditors in advance about the purchase of the seller's assets. This notification should be done at least ten days prior to the transfer and must meet statutory requirements. Additionally, the buyer should file the list of creditors and the schedule of property transferred with the County Recorder. However, compliance with the law can be tedious and time-consuming, leading many buyers and sellers to waive it. In such cases, buyers can protect themselves by holding part of the purchase price in escrow for a certain period. The amount to be held in escrow is determined after the seller discloses information about its outstanding debts and obligations. The buyer should also seek a representation from the seller that the disclosures are accurate and complete. Another way for the buyer to protect themselves is by seeking indemnification from the seller against any future claims by the seller's creditors. However, this is only effective if the seller has assets and will remain in existence after the sale of its assets.