Orange County Business Attorneys – California Commercial Code 6106.2

As Orange County Business Attorneys, we believe it is important to keep our small business clients up to date with the latest California Codes that apply to their small business corporations. Amongst those laws is the one that pertains to the duties of the buyer to pay those debts of the seller notice requirements of a bulk sale.

California Commercial Code Section 1606.2 describes the duty of the buyer to pay the debts of the seller when the sale is for two million dollars ($2,000,000) or less to satisfy the requirements of the California Bulk Sales Law.

§ 6106.2. Requirement For Certain Sales That Consideration Be Applied To Pay Debts Of Seller

(a) This section applies only to a bulk sale where the consideration is two million dollars ($2,000,000) or less and is substantially all cash or an obligation of the buyer to pay cash in the future to the seller or a combination thereof.

(b) Upon every bulk sale subject to this section except one made by sale at auction or a sale or series of sales conducted by a liquidator on the seller’s behalf, it is the duty of the buyer or, if the transaction is handled through an escrow, the escrow agent to apply the cash consideration in accordance with this section so far as necessary to pay those debts of the seller for which claims are due and payable on or before the date of the bulk sale and are received in writing on or prior to the date specified as the last date to file claims with the person designated in the notice to receive claims. This duty of the buyer or escrow agent runs to each claimant timely filing the claim.

(c) If the seller disputes whether a claim is due and payable on the date of the bulk sale or the amount of any claim, the buyer or escrow agent shall withhold from distribution an amount equal to (1) 125 percent of the first seven thousand five hundred dollars ($7,500) of the claim, and (2) an amount equal to that portion of the claim in excess of the first seven thousand five hundred dollars ($7,500), or the pro-rata amount under subdivision (b) of Section 6106.4, if applicable, and shall send a written notice to the claimant filing the claim on or before two business days after the distribution that the amount will be paid to the seller, or to the other claimants in accordance with subdivision (b) of Section 6106.4, as the case may be unless attached within 25 days from the mailing of the notice. Any portion of the amount withheld which is not attached by the claimant within that time shall be paid by the buyer or escrow agent to the seller, or to the other claimants in accordance with subdivision (b) of Section 6106.4 if they have not been paid in full. An attachment of any amount so withheld shall be limited in its effect to the amount withheld for the attaching claimant and shall give the attaching claimant no greater priority or rights with respect to its claim than the claimant would have had if the claim had not been disputed. For purposes of this subdivision, a claimant may obtain the issuance of an attachment for a claim which is less than five hundred dollars ($500) and which otherwise meets the requirements of Section 483.010 of the Code of Civil Procedure or which is a secured claim or lien of the type described in Section 483.010 of the Code of Civil Procedure. The remedy in this subdivision shall be in addition to any other remedies the claimant may have, including any right to attach the property intended to be transferred or any other property.

(d) If the cash consideration payable is not sufficient to pay all of the claims received in full, where no escrow has been established pursuant to Section 6106.4, the buyer shall follow the procedures specified in subdivisions (a) to (c), inclusive, of Section 6106.4, and the immunity established by paragraph (3) of subdivision (a) of that section shall apply to the buyer.

(e) The buyer or escrow agent shall, within 45 days after the buyer takes legal title to any of the goods, either pay to the extent of the cash consideration the claims filed and not disputed, or the applicable portion thereof to the extent of the cash consideration under subdivision (b) of Section 6106.4, or institute an action in interpleader pursuant to subdivision (b) of Section 386 of the Code of Civil Procedure and deposit the consideration with the clerk of the court pursuant to subdivision (c) of that section. The action shall be brought to the appropriate court in the county where the seller had its principal place of business in this state. Sections 386.1 and 386.6 of the Code of Civil Procedure shall apply in the action.

(f) The notice shall state, in addition to the matters required by Section 6105, the name and address of the person with whom claims may be filed and the last date for filing claims, which shall be the business day before the date stated in the notice pursuant to paragraph (4) of subdivision (a) of Section 6105. Claims shall be deemed timely filed only if actually received by the person designated in the notice to receive claims before the close of business on the day specified in the notice as the last date for filing claims.

(g) This section shall not be construed to release any security interest or other lien on the property which is the subject of the bulk sale except upon a voluntary release by the secured party or lienholder.

Cal U Com Code § 6106.2 (2013)

What if I need help understanding California Commercial Code Section 1606.2?

It is important to understand that failure to follow the rules can result in a buyer of assets of a business suffering severe penalties for not doing things correctly.

If you are not sure how this law may apply to you, please call the Business Attorneys in Orange County at 714-634-4838.