California Commercial Code §6101, et. seq. is the codification of the Uniform Commercial Code Bulk Sales law. It is one instance where a buyer of assets may be responsible for the obligations of the seller, even though the asset purchase agreement states otherwise.
A Bulk Sale is defined as any sale outside the ordinary course of the seller’s business of more than half of the seller’s inventory and equipment based on fair market value on the date of the sale. California’s Bulk Sale law only applies if the seller’s principal business is the sale of inventory from stock, including those who manufacture what they sell, or a restaurant owner, and only if the seller is located in California.
Additionally, the Bulk Sale law only applies to sales where the net value of the assets is between $10,000 and $5,000,000.
To comply with the law, there are two steps
I. The buyer must prepare a notice of bulk sale that provides the following information:
1. States that a bulk sale is about to be made;
2. gives Seller’s name and business address and any other business names and addresses used by the seller during the three years prior to the sale and the buyer’s name and business address;
3. Describe the assets and their physical location;
4. State the place of the bulk sale and anticipated date of the bulk sale;
5. A statement whether the bulk sale is a Small Cash Sale (Between $10,000 and $2,000,000), and if so:
a) name and address of the person with whom claims may be filed; and,
b) last date for filing claims, which must be one business day before the anticipated date of the bulk sale set forth in the notice.
II. Second, at least twelve business days before the sale takes place, the notice must be:
1. Recorded in the county recorder’s office;
2. Published in a local newspaper of general circulation; and,
3. Delivered to the county tax collector.
The danger of failing to comply with these provision is that an unwary buyer will be liable to the seller’s creditors. Obviously not the result most buyers are looking for so be careful when buying a company with inventory or a restaurant.