Q: What happens to business debt if I buy a company for less than the company owes?
Owner of business wants to sell company and business assets to me. Business debt is greater than asking price. Asking price takes care of owners personally guaranteed debt, and there would still be $80,000 in an outstanding EIDL loan. Would I be inheriting the debt with the company? Or should I wait for him to file bankruptcy and then try to buy out?
A: You have proposed a knotty problem in a few sentences.
It matters if the company is a corporation, LLC, or the like
It matters if there are assets such as inventory
It matters if the debt is secured
It matters if it is an assets purchase only
It matters if the sale is subject to the Bulk Sales Act as enacted in Mississippi
You need a lawyer to be sure you aren't buying a passle of debt on no real asset.
A: I pracrice in PA, but almost all states have some version of what's also called a Bulk Sales Law, and by that law, a debtor cannot sell all, or a substantial portion, of his business assets and leave creditors hanging, so the law provides that the debt follows the assets. Even where a state hasn't adopted a "bulk sales" statute, the courts have often reached the same result under "successor liability" theories.
Purchasing the assets out of the debtor's bankruptcy case is a "cleaner", more reliable way to acquire the assets, although under most bankruptcy procedures, the assets are put up for public auction. Even if you submit a bid for a private sale, the proposed sale must be disclosed to all creditors and "interested parties" in the bankruptcy, and your offer becomes a "stalking horse", and can be trumped by a higher offer(s) from others.
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