Volume 2 Issue 3

May/Jun 1998

© by Newland & Associates

In the January/February issue, we talked about Lord Wadbottom's contribution to the creation of corporate entities. This time we will delve into the sale of his peruke business.

For those of you dying to know what a peruke is, we don't know, it just seemed like a smashing word that would cause you to read on. (Actually, a peruke is a long, flowing wig of the type Lord Wadbottom probably wore.)

In addition to wearing a peruke, Lord Wadbottom sold them and had the first peruke franchise operation in London, long before McDonald's even contemplated hamburger franchises. As styles changed, the peruke business declined. After Lord Wadbottom's creditors became bothersome, he sold the entire chain to Lord Dinwittie for an alarming sum and fled to the Colonies where his descendants, one of whom was named Lord Kroc, later founded McDonald's.

Back to those earlier times - what happened when Lord Wadbottom's creditors approached Lord Dinwittie and asked for payment? While there is no video of those events, allegedly Lord Dinwittie told the creditors to take a long trip to the Colonies, whereupon the creditors said, "You, Lord Dinwittie, Sir, have the peruke to make us whole. Sell the peruke and pay your debts!" Lord Dinwittie then reminded them that the King was his brother-in-law.

Can the Buyer Avoid the Seller's Creditors?

What about you? Can you sell your business in bulk and leave with the money? Assuming you are a scoundrel like Lord Wadbottom, the answer is "Yes," but nowadays the Buyer cannot avoid the Seller's creditors even if he or she is related to our current King, Clinton. Virginia and many other states have adopted Article 6 of the Uniform Commercial Code (UCC), which is more commonly called the Bulk Sales Act.

Assuming most, or all, of the inventory of a business is sold in bulk, there are now laws designed to protect creditors of the business. How do they work?

The bulk Seller, like Lord Wadbottom, is required to provide the Buyer with a list of creditors of the business and the assets sold. The Buyer, Lord Dinwittie, is required to keep the list, and provide it to creditors when requested. In addition, the Buyer is required to notify the creditors of the bulk sale, along with particulars about the transaction and inform the creditors how they will be paid.

What if the bulk sales list and notice requirements are neglected or overlooked? No longer can Lord Dinwittie say "Take a walk." If the Bulk Sales Act provisions are ignored, the Seller's business creditors have a claim against the Buyer. Thus, the Buyer of the peruke chain would be subject to litigation and demand for payment of the debts of Lord Wadbottom.

Buyers & Creditors - Know the Law

How does this knowledge translate to today's world? If you are a Buyer in bulk of a business with inventory assets or a creditor of a business sold in bulk, you should be keenly attuned to the responsibilities or protection created by the law.

For example, a client of Newland & Associates recently sold her florist business in bulk, still owing us legal fees. A call to the Buyer resulted in a promise that if the Seller did not pay soon, there would be a correlating reduction in the remaining purchase price to be paid for the business.

Most Sellers and Buyers do not leave creditors hanging for a variety of reasons. However, the Bulk Sales Act affords an important measure of relief from those Sellers inclined to cheat Buyers and defraud creditors. In any event, if you are thinking of buying inventory assets in bulk, think twice if the Seller does not want to fully comply with the Bulk Sales Act. Failure to obtain correct compliance from the Seller may result in unintended results and headaches for the Buyer.

Previous Article | Next Article

List of Articles by Newland & Associates

Published by the law firm of Newland & Associates, P.L.C. For a full range of business law and tax-related services, call us at (703) 330-0000. You may also e-mail us at , or visit our web site at http://www.tax-business.com.

If you are reading this newsletter but are not on our mailing list, and would like to be, please contact us, at the above mentioned number.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in this article is expressly prohibited without the written permission of Newland & Associates, PLC.

Newland & Associates Main | Authors Row Main | Home