Legal Question in Business Law in California

Re: Sale of assets only

The basic answer is "NO." Particularly if Company B is owned in part by the former shareholders or owners of Company A. That is classic alter ego situation, and the courts would hold B liable for the debts of A.And if not, and no notice to creditors is given, then B will be liable at best for all debts up to the value of assets purchased, and at worst for all the debts of A even if the debts are greater than the value of the assets received.

Re: Sale of assets only

You can purchase the assets and not the debts of a company, as long as you abide by the Bulk Sales Act, which requires notice of the sale, and an escrow to handle the transfer of funds and assets. Creditors of the seller can file claims in that escrow, but you as the buyer have nothing to worry about, you get the assets free and clear for the money you paid into the escrow.

Re: Sale of assets only

The answer is YES; however, the selling company must in many cases abide by the Uniform Commercial Code - Bulk Sales statute which in California is found at Commercial Code sections 6101 through 6111. Not all assets sales come under the Bulk Sales laws, however. See section 6103(c) for exceptions. Further, the selling company can comply with the law by giving notice to creditors and otherwise. Thus, the law regulates without prohibiting these asset sales.

The real question here is whether the sale amounts to a fraud upon creditors or shareholders. A sale of assets should be for fair market value, in which case the selling company receives cash or the equivalent in exchange for the sold assets. This cash can (and should) then be applied to satisfy the debts of the selling company. If the cash is just pocketed by the insiders, that's fraud and probably criminal as well.

Thus, it's not the asset sale itself that must be held up to scrutiny as much as it is the subsequent behavior of the seller and its insiders with respect to the proceeds of the sale.

If the sale is conducted in violation of the rights of minority shareholders, they also have rights similar to those of creditors. Those rights are not to receive the amount due on a debt, but rather to receive a fair pro-rata distribution of the net proceeds after pay-off of debts. The minority holders may also have other rights and claims relating to authority of the corporation to carry out the sale at all.

Bulk sales of corporate assets happen all the time and most of these sales are perfectly legal and legitimate. Some are not, and they are distinguished by subsequent unfair treatment of creditors, minority shareholders and sometimes customers and employees. Case-by-case analysis is necessary, and any complaint has to be based on some specific instance of fraud, breach of contract, or breach of a fiduciary duty.

You can consult the Commerical Code on line or at most libraries.

If you have need of more personalized legal assistance in this matter, if you sense something fraudulent or would like to give me more facts, please feel free to contact me for an initial consultation, gratis. I have considerable experience in business-sale and asset-sale transactions.

Re: Sale of assets only

yes they can. there are certain requirements.

Joel Selik

800-894-2889

www.4thelaw.com/services3.html