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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
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Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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In New York State, what notification does a business have to

Resolved Question:

In New York State, what notification does a business have to give its creditors if it is selling or transfering the business? I know they have to notify the NYS tax department but, specifically, can they "sell" or "transfer" their business without providing any notification to their unsecured creditors?
Submitted: 11 months ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 11 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking.

If you are not winding up your corporate entity, but are merely transferring the corporation to new owners who will assume all of the corporations assets and liabilities, then you do not have to publish notices of the sale and you merely send a letter to each of your creditors that the new owner of the corporation has assumed liability for all of the debts of the corporation, which remains liable for the debts to those creditors. The exception to this is that you remain liable for any personal guarantees on any debts and for those you have to get the creditor to agree in writing to substitute someone from the new owners as a guarantor or you would remain personally liable.

If you are only selling off the assets of the corporation, then the "Bulk sales" laws are intended to prevent business owners from defrauding or evading creditors by transferring all (or a substantial portion) of the assets of the business to another individual or entity. The corporation must prepare a Notice to Creditors of Bulk Transfer and mailed to known creditors. Additionally, the notice is printed in a general circulation paper that covers the judicial district in which the property being transferred is located, at least 12 business days prior to the date of transfer of the property. The notice must also be published in the judicial district where the principal executive office of the prior business is located. Copies must be filed in each judicial district or county where the property is located and where the prior business had its principal executive office, with the county tax collector and the county recorder, at least 12 business days prior to the transfer.

If none of the creditors file claims, then the new owner can take the assets free of any subsequent claims.



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Customer: replied 11 months ago.

Could you please confirm that the Bulk Sales "law" in NYS still requires this? I read on the internet that the Bulk Sales act, or at least how it is applied in NYS, no longer requires notification to creditors (only notification to the NYS tax department). This is why I used the "Just Answer" website...if the Bulk Sales Law no longer requires notification to creditors, then what are the requirements in NYS?


 

Expert:  Law Educator, Esq. replied 11 months ago.
Thank you for your response.

NY has abolished Article 6 of the UCC, which was the bulk sales act, but still has Article 10 of the Debtor and Creditor law. Thus, the notice of the sale of assets does not have to be provided except to the tax department. However, under Article 10, it is the CREDITOR who would have the right to file a claim that the sale of assets was done to defraud the creditor out of payment and that the transfer should be rescinded or money damages should be awarded to the creditor. Article 10 of the debtor creditor act in NY does not require the notices of sale to the creditor though. Thus, under the current NY law, the notices formerly required under Article 6 of the UCC for bulk sales, which I was not sure that was even what you were engaging in from your question, are not required.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 88411
Experience: All corporate law, including non-profits and charitable fraternal organizations.
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