The bulk transfers law in chapter 406 of the Wisconsin Statutes protects a buyer who purchases the assets of an existing business from becoming liable to the seller’s creditors for the seller’s debts. If the requirements of the bulk transfers law are not satisfied, the buyer’s title to the inventory (and equipment) may be subject to the claims of the seller’s creditors, and the buyer may have to pay those debts in order to preserve the inventory (and equipment).

The bulk transfers law applies when sellers sell a major part of their inventory (stock-in-trade), or their inventory and equipment. “Inventory” is defined to include goods which are held to be sold, leased or furnished under service contracts, as well as raw materials, work in process, and materials used or consumed in a business. “Equipment” is defined as goods (other than inventory), farm products or consumer goods that are used in a business (e.g., tables, linens, dishes, etc., in a restaurant business).

The steps for complying with the bulk transfers law are:

1. The buyer asks the seller for a signed and sworn list of the seller’s existing creditors, including their names, addresses and amounts owed, if known; the names of all persons with disputed claims against seller; and the name and address of the clerk of the municipality where the property was last assessed.
2. The parties prepare a detailed list of the inventory (and equipment) that will be transferred to the buyer.
3. At least 10 days before the buyer takes possession of the inventory (and equipment), the buyer gives written notice to each creditor on the seller’s list. The notice indicates that a bulk transfer is about to be made; the names and addresses of the seller and the buyer; whether the seller’s debts will be paid in full as they fall due as a result of the transaction; and, if so, the address to which the creditors should send their bills. The notice must be delivered personally or sent by certified or registered mail to all creditors on the seller’s list plus all persons who are known to the buyer to have claims against the seller.
4. The buyer saves the list of creditors and the list of inventory (and equipment) transferred for at least six months after closing, or files the list and schedule with the Department of Financial Institutions.

Wis. Stat. § 406.111 gives a creditor six months following a bulk transfer (or discovery of a concealed transfer) to bring a claim.

The seller agrees in both the WB-16 Business Offer to Purchase and the WB-17 Business Offer to Purchase Without Real Estate to comply with the bulk transfers law. The Bulk Sales section in these offers provides that the delivery of a fully executed copy of the offer to the seller constitutes the buyer’s demand for the seller’s list of creditors and for the seller to prepare the list of inventory (and equipment) being transferred.

As illustrated in the unreported Wisconsin Court of Appeals case, Dellabella v. Dellabella Motors, Inc. (2006, No. 2005AP001521), online at www.wisbar.org/res/capp/2006/2005ap001521.htm, a decision to waive compliance with the bulk transfers statutes is plainly neither unlawful nor fraudulent.

In the Dellabella case, when the family-owned automobile dealership was sold, an agreement was made to have the seller, Dellabella Motors, indemnify the purchaser, Runde Chevrolet, for creditor claims if Runde Chevrolet waived the requirements of the bulk transfers statutes. The Court rejected the creditor’s claim that the sale defrauded her because the statutory bulk transfer process was not followed.

Nothing in chapter 406 of the Statutes precludes parties from agreeing to some other arrangement for dealing with existing creditors, but the bulk transfers statutes provide invaluable protection absent a negotiated alternative means. Compliance with the bulk transfers law, and certainly any decisions to pursue alternative measures to protect the buyer from the seller’s creditors’ claims, should be handled by a competent business attorney.

Debbi Conrad is Director of Legal Affairs