Sometimes referred to as a bulk transfer, a bulk sale is a situation in which a business or other entity sells all or most of its assets to a sole buyer. Sales of this type may take place when a business is shutting down and wishes to liquidate its inventory, or as a means of settling outstanding debts owed to creditors. Most countries have some type of bulk sales law or laws that help to protect the rights of the buyer against claims made by creditors.
It is important to note that selling items in bulk is not the same as a bulk sale. The difference has to do with what constitutes normal sales activity for the business. For example, farmers often contract to sell an entire season’s harvest of a given crop to a single buyer; this is a standard way of doing business within that industry, and therefore does not meet the criteria for a bulk sale situation. By contrast, a small business that makes canoes would normally sell their goods over time to multiple buyers. In the event that the canoe maker suddenly sold the entire inventory of canoes to a single buyer, this would be considered outside the scope of normal sales activity, and constitute a bulk sale.
Conducting a bulk sale follows the general lines of any type of mass sale of assets. For example, if a business is preparing to shut down, it will want to dispose of its inventory of finished goods that are awaiting sale. Instead of selling off the inventory items to multiple buyers, the company will seek one buyer who can purchase the entire inventory for one flat rate. This allows the company to quickly manage the sale, use the funds to settle any outstanding debts, and continue the process of shutting down the overall operation.
In order to protect the interests of both creditors and buyers, many jurisdictions have enacted some type of bulk sales legislation. While the specifics vary from one area to another, the basic idea behind various bulk sales acts and regulations is to make sure that the seller has made proper arrangements with creditors to pay off any outstanding debts before a bulk sale project is undertaken. At the same time, many jurisdictions require that the seller provide the buyer with documentation that shows which of the assets acquired in the sale are secured and unsecured, and the extent of debt connected with any of the assets.
Often, this same information must be filed in the form of an affidavit with the local government, usually a local court. This process allows creditors to be aware of the sale in advance, arrange for payment with the seller, or log any objections through local legal channels. It also helps to ensure that potential buyers are fully informed of debts connected with the assets, and can work with the seller and the creditors to retire those debts as part of the acquisition process.
