Lesson 40: Bulk Transfers/Bulk Sales (Article 6)

Introduction

Article 6 of the Uniform Commercial Code (UCC) deals with Bulk Transfers and Bulk Sales. This Article is particularly relevant for businesses undergoing a sale of a substantial part of their materials, inventory, or other assets to a single buyer, often during business liquidation. Understanding the intricacies of Article 6 is crucial for both buyers and sellers to ensure that these transactions are conducted legally and transparently.

Definition of Bulk Transfer/Bulk Sale

A Bulk Transfer, also known as a Bulk Sale, refers to the transfer of a large part of a business's inventory and equipment that is not part of the ordinary course of business. This typically occurs when a company is sold, merged, or liquidated.

Note: Article 6 applies primarily to transactions involving the transfer of inventory and equipment, excluding sales conducted in the ordinary course of business.

Purpose of Article 6

The primary purpose of Article 6 is to prevent business owners from defrauding their creditors by selling off all their assets without notifying them. The Article establishes a structured process for such transactions, ensuring that creditors have an opportunity to claim what they are owed before the business's assets are transferred.

Key Provisions of Article 6

Article 6 includes several important provisions that must be followed during a Bulk Transfer:

Notification to Creditors: The seller must notify all creditors of the impending sale, providing them with an opportunity to seek settlement of debts.
List of Assets: A complete list of the items being transferred must be made available to the buyer and creditors.
Schedule of Distribution: A plan detailing how the proceeds from the sale will be distributed among the creditors.

Notification Requirements

One of the critical components of Article 6 is the requirement for the seller to notify creditors of the impending bulk sale. This notification must include key details such as the names and addresses of the buyer and seller, a description of the property being sold, and the date of the sale.

Example Workflow of a Bulk Sale

The following diagram illustrates a typical workflow for a Bulk Sale under Article 6:

graph TD A["Seller decides to sell business assets"] --> B["Seller prepares list of assets"] B --> C["Seller notifies creditors"] C --> D["Creditors review and submit claims"] D --> E["Seller and Buyer finalize the sale"] E --> F["Proceeds distributed to creditors"]

Legal Consequences of Non-Compliance

Failure to comply with the provisions of Article 6 can result in significant legal consequences for both the buyer and the seller. Non-compliance may render the sale voidable, and creditors may seek legal action to reclaim their debts. Therefore, adherence to the notification and documentation requirements is paramount.

Example Code for Notification

Below is an example of HTML code to generate a notification form for creditors:

Relevant UCC Sections

Article 6 is codified in the Uniform Commercial Code, and you can find more details in the following sections:

UCC Article 6 - Bulk Transfers
Section 6-101: Short Title - For further reading, consider this Contracts Law Book.
Section 6-102: Definitions and Index of Definitions - Recommended reading: Advanced Contracts Law Guide.
Section 6-103: Applicability of Article - Supplementary material: Contracts Law Explained.

Conclusion

Understanding the requirements and implications of Article 6 is crucial for both buyers and sellers involved in bulk transfers. Ensuring compliance with the notification and documentation requirements helps protect the interests of creditors and facilitates a smooth transaction process.