Bulk Sales Escrow

What is a Bulk Sale Escrow?

Bulk sale escrows can be defined as an escrow agreement placed on the sale of inventory, business assets, or a company. The escrow is designed to protect the assets of unsecured creditors. It is designed to eliminate the possibility of the seller using the money from the sale on other things besides taxes owed or debts to be paid.

If a business is experiencing financial difficulty, it can lessen its issues by downsizing business and selling portions of inventory or business assets. An escrow agent will collect the funds from the seller to protect them from being used on unprofitable business deals. The escrow agent will then forward the funds to the right parties. Generally, escrow fees will be charged for this service and the service costs are split between the buyer and the seller. However, the two parties can agree in writing to any specified amount of payment.

Any purchaser buying assets or a business is generally not liable for the seller’s obligations unless the buyer agrees to take on those obligations. There are a number of laws that determine the successor to become liable for the purchase of a business, the bulk sale law being one. If the buyer fails to ensure that the bulk sale transaction agrees with the law, the buyer will be responsible for the seller’s debts, and be subject to the seller’s creditors. However, if a buyer gets locked in to paying for the seller’s debts when it was not part of the agreement, the seller can be reimbursed. Therefore, in most cases, a buyer will want to ensure that a business purchase complies with the bulk sales law.