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Our Subscribers Say...
I think Credit Today is fantastic. You cover many practical topics in the credit field that I use regularly. Just one recent example—a conversation on the ListServ about preferential payments—gave me tips that I used in an actual case. The specific information I picked up from this one discussion saved me $10,000, enough to cover my membership for many years!
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Manager of Credit & Collections, ASSA Abloy Americas Division, New Haven, CT
Credit Today's Resource Directory and their online e-mail forum (ListServ) provide information on almost any credit-related topic you can think of. It is a great way to exchange information with other credit professionals. As the saying goes, "You don't know what you don't know."
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Fort Worth, Texas
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The Bulk Sale Law
Chances are, Ed can collect under the provisions of the Bulk Sale Law.
A bulk sale is usually a sale made not in the ordinary course of the business of the debtor. It usually must be a major part of the material, supplies, or merchandise or other inventory of the debtor.
Without a bulk-sale law, a merchant who is insolvent could pocket the proceeds of the sale of the inventory and leave for parts unknown. Consider the sham transfer where the selling business goes through the motions of selling to a close friend or relative at less than fair price, buys back the merchandise from the relative, and then organizes a new business. Consider also the merchant who dumps the inventory on a knowing transferee for less than half the value.
The law states that a conveyance made with actual intent to delay or defraud present or future creditors is fraudulent. The creditor may proceed against the debtor but not against the transferee unless the transferee did not pay a full and fair consideration for the merchandise. If the transferee has sold the merchandise to another party, the creditor may have no remedy to reach the merchandise.
It was for these reasons that the Bulk Sales Law was enacted. The law is substantially the same in most of the states, but variations occur with regard to the notice and other requirements of the Uniform Commercial Code and state law. Careful examination of the laws of each state where you are doing business is a good idea.
A key requirement of the Bulk Sales Law is that the business must be engaged in a sale of merchandise from stock. Thus the law excludes such businesses as farms, contractors, professional services, cleaning shops, barber shops, hotels, and restaurants. Nevertheless, there is a split between the states as to whether restaurants and bars are included within the law, and a number of states have expressly included restaurants. Brokerage and data processing firms, loan companies, photo finishing companies, and even airlines have been excluded. Primarily, we are dealing with a business selling inventory from stock.
The statute provides for certain requirements to be met by the debtor and the transferee.
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The debtor must prepare a list of existing creditors and a schedule of the property to be transferred, and must deliver the list to the transferee. The transferee, for a period of six months, must permit creditors of the debtor to inspect and copy the list and the schedule.
Within a certain number of days before the sale, depending upon the state law, the transferee must notify each and every creditor that the transfer will take place. Naturally, the debtor must sign and swear that the list of creditors furnished to the transferee is accurate with no errors.
The notice must set forth the name and address of both the transferee and the debtor. What is most important is that the notice must set forth whether or the debts are to be paid in full (and to whom the creditor should send their invoices). The notice must state the location and description of the property and what percentage is to be paid to creditors if it is less than the full amount. Some states provide different procedures and a reading of each state law is necessary.
The next question a creditor will ask his or her attorney is "What do I do now?" The key issue is whether the debtor and the transferee have complied with the Bulk Sales Law of the state in which they are located. If they have failed to comply, the creditor may have the right to declare the transfer ineffective against the creditor of the debtor.
The creditor should review what is contained in the notice of the bulk sale, the list of creditors, the description of the property, and the sales price and then should compare this information with what he or she already knows about the debtor. If the sales price seems inadequate or the facts do not present a fair transfer, consult your attorney to investigate further. If the creditor has not received notice, the creditor should also consult an attorney, for the creditor may be able to attack the sale.
In the absence of a bulk sale, a debtor's unsecured creditors are generally not entitled to levy on assets that were sold to the transferee. On the other hand, with the Bulk Sales Law, the debtor's creditors may levy on transferred assets. Case law has held that the transferee is liable up to the value of the assets transferred when the transferee did not comply with the Bulk Sales Law requirements. Transferees will usually vigorously oppose proceeding to levy on their assets, and suits against the debtor for fraud or for failure to comply with the Bulk Sales Law also may entail significant legal proceedings.
Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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Credit Groups 2012
Wonder What the ROI is on Credit Groups?
Find out here...
It's been 4 years since our original ground-breaking survey on credit groups and we're revisiting this most important topic. Among other topics, we're investigating:
- What are the top services being offered by credit groups
- How much credit groups cost
- What the value of credit group services is
- What the value of credit group services is in comparison to credit reporting services
- How data is submitted
- What percentage of credit groups reveal terms
- What percentage of credit groups share data outside the credit group
And much more...
Click here to participate!
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