What to do when Your Debtor Claims He Is Not Responsible for the Debt Because He Sold the Business to New Owners.

In the world of collections, it is quite common to run across corporate debtors that have recently been sold to new owners. This is because people like to sell businesses that owe money in an attempt to defraud creditors. They believe that if they sell the business, they won’t be responsible for the debts of the business any longer.

What usually happens is when the creditor calls the business to collect the debt, the new owners claim that they purchased the assets of the business and not the liabilities and that they are therefore not responsible for the debt. When the creditor calls the old owners, they claim that they are not responsible for the debt since they no longer own the business. At this point, the creditor doesn’t know who to turn to for collection of the debt.

The answer is simple. The Uniform Commercial Code Sections 6-105 and 6-107 state that any sale of a business is fraudulent and void against any creditor of the transferor unless the transferor notifies the creditor:

  1. that the business is going to be sold;
  2. of the name and business addresses of the buyer and seller;
  3. of a description of exactly what is being sold;
  4. of the date and place on which the sale is to take place.

The transferor must not only record the transfer with the county recorder at least ten days before the sale, but also publish it in a newspaper of general circulation.

If the debtor fails to comply with any of the requirements described above, then the creditor is free to go after the old owners for the debt. Happy hunting!