Bulk Transfers

• Author: David J. Cook
• Pages: 111-130

Bulk Transfers

The Short Story

Synopsis

A bulk transfer is the sale of a business primarily selling goods or manu-

facturing that provides for notice to creditors, an escrow, and payment of

claims. Very closely associated is California Business and Professions Code

Section 24074, which requires parties to establish an escrow for payment of

creditors’ claims from the proceeds for all sales that involve the transfer of

any liquor license (including beer and wine).

Legal Basis

Article 6 of the Uniform Commercial Code, if enacted. The common term is

the Bulk Sales Act. Some variations also include escrow conducted under the

auspices of the state’s alcoholic Beverage Control Act that might establish

an escrow for creditors. A cautious buyer might demand notice and escrow

to insure that creditors “come out of the wood work” and receive payment

of claims. Fearful of secret or undisclosed claims, hidden liens, or other hor-

rors dropping from the sky, buyers can demand an escrow and notice to the

creditors.

Is This a Good Law?

Many states have repealed their bulk sale laws (Article 6 of the UCC). How-

ever, California retains the Division 6 in its near original form.

When Do I File a Claim?

Within 12 business days—check with local statute. This is very short period

of time, considering that notice is not electronic and that creditors might

need time to gather key documents and time to physically file the claim.

What Does It Mean to File a Claim?

Use personal delivery, overnight services, USPS Express mail, and maybe

fax. Email is uncertain, but you can try.

How Do I Locate the Filing?

It is difficult. Notice is published and recorded; notice is not sent to credi-

tors, depending upon the state statute. Creditors should cull through the

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INSOLVENCY EXPLAINED

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public records (i.e., the recorder) to locate the notice. Depending upon the

state, some commercial services provide “alert” notices that might or might

not be timely. If the creditor filed a UCC, the buyer or escrow holder will

communicate with the secured creditor to obtain a lien release and pay-off.

What Do I File?

A letter specifying the amount, including the basis, total due, support docu-

mentation, and accruing interest (the rate and daily amount).

Do I Get Accruing Interest?

Yes, for secured claims. Yes, for unsecured claims if the estate is solvent. No,

for unsecured claims if the estate is insolvent.

Do I Need to Update the Claim?

Yes.

Who Gets the Claim?

The escrow agent.

What Should I Include?

Everything.

Are There Privacy Issues?

Redact social security numbers, driver’s license numbers, bank account

numbers, and other clearly private information.

What Should I Expect from the Escrow Holder (and When)?

Acknowledgment of the claim within seven days. Ask for the acknowledg-

ment. Confirm receipt.

Is There Judicial Supervision?

None, unless state enacted.

Is There a Risk of Side Deals?

Yes, a very high one. Unlike bankruptcy, which compel disclosures and

enables the trustee to “reach back” to recover hidden or transferred assets,

the bulk sale is a snapshot of the buyer’s and seller’s escrow instructions.

The escrow does not reach a side deal, prior transfers, other viable assets,

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