Bulk Sales Law – Definition

Cite this article as:"Bulk Sales Law – Definition," in The Business Professor, updated June 10, 2019, last accessed August 12, 2020, https://thebusinessprofessor.com/lesson/bulk-sales-law-definition/.

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Bulk Sales Law Definition

A bulk sales law is a federal or state law that guides the transfer of bulk sales from a business to a buyer outside the course of the business.  Bulk sales entail the transfer of all assets or a large part of an u=inventory held by a business to another business entity. A Bulk sales law is not the same as selling the inventory or assets held by a business in bulk, it is a federal or state law that governs bulk sales.

This law protects creditors and also prevents business owners from avoiding creditors. The bulk sales law require that bulk sales are registered with a federal or state government agency so that creditors can be notified of bulk transfers whenever they occur.

A Little More on What is a Bulk Sales Law

In a bid to evade creditors, a business owner might transfer the business assets or the entire inventory owned by the business to another business entity without informing creditors. Some businesses engage in bulk sales to avoid sales taxes, bankrupt businesses also engage in this act. Bulk sales laws prevent businesses in bankruptcy from engaging in bulk sales or bulk transfer, business trying to evade sales taxes are also prevented from doing so because every buyer must pay sales taxes.

Both state and federal laws that prevent bulk sales without informing creditors exist.  Federal laws prevent bulk sales carried out as attempts to evade creditors, especially by bankrupt businesses. Bulk sales laws at the state level fall under the Universal Commercial Code (UCC), each state has UCC regulations that might be different from those of other states.

The bulk sales laws maintain that creditors must be notified of bulk sales and these laws ensure that assets are not sold for less than their fair value. Bulk sales laws at the federal level are contained in the Uniform Fraudulent Transfer Act, Chapter 11 of the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. The bankruptcy code for instance provides procedures that must be followed if a business wants to sell assets in bankruptcy.

Bulk sales must be registered with government agencies both at the state and federal levels, and such sales must be filed through an affidavit informing creditors about the sales. Notification of Sale or Transfer is a form that must be filed in New York, notifying the state of bulk sales.

However, a bulk sale done outside the tenets of either federal or state bulk sales laws include certain elements. These elements include;

  • sales done with or without the intention of defrauding or evading creditors but which eventually turned out to be fraudulent.
  • A bulk sale with no adequate payment or fair value of assets sold.
  • A bulk sales or transfer to an entirely different business entity outside the course of the business.
  • A bulk sale to just one party.

Bulk Sales and Credit

When a bulk sale is done by a business just to evade creditors, it means that the creditors wont get their money back and the assets cannot be sold to pay off creditors. In most cases, businesses operate on credit, some of them fraudulently carry out bulk sales to avoid creditors. Bulk sales laws however prevent such occurrence, it protects creditors and prevent businesses from fraudulent activities.

A business that violates the bulk sales laws whether at the state or federal level is liable to face the penalties of the violation. In order to avoid penalties, businesses must duly follow the procedures of bilk sales or transfers as stipulated by state and federal laws.

References for  Bulk Sales Law

Academic Research on Bulk Sales Law

Bulk Sales Law and Adequate Protection of Creditors, Weintraub, B., & Levin, H. (1952). J. Nat’l Ass’n Ref. Bankr., 26, 99.

Bulk Sales Laws: A Study in Economic Adjustment, Billig, T. C. (1928). University of Pennsylvania Law Review and American Law Register, 77(1), 72-102.

Bulk Sales Laws: Transactions Covered by These Statutes, Billig, T. C., & Smith, K. R. (1932). W. Va. LQ, 39, 323.

The Law of Sales Under the Uniform Commercial Code, Henning, W. H., Lawrence, W. H., & Wallach, G. I. (1992).

Bulk Sales: Texas Law and the Uniform Commercial Code, Larson, L. V. (1952). Sw. LJ, 6, 417

Bulk Sales Laws: A Study in Statutory Interpretation, Billig, T. C., & Smith, K. R. (1931). W. Va. LQ, 38, 309.

The Problem of Transfers under Bulk Sales Laws: A Study of Absolute Transfers and Liquidating Trusts, Billig, T. C., & Branch, W. L. (1937). Michigan Law Review, 35(5), 732-761.

Bulk Sales Laws: Businesses Included, Miller, F. W. (1954). Wash. ULQ, 1.

The Uniform Commercial Code-Sales, Bulk Sales, and Documents of Title, Carrington, P. D. (1960). Wyo. LJ, 15, 1.

Bulk Sales Laws: Meaning to Be Attached to the Quantitative and Qualitative Requirements Phrases of the Statutes, Miller, F. W. (1954). Wash. ULQ, 283.

Bulk Sales Laws: Property Included, Miller, F. W. (1954). Wash. ULQ, 132.

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