What is a Bulk Sales Act?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 May 2020
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A bulk sales act is a law governing bulk sales transactions, where a business sells all or most of its inventory to a single buyer, and this is not normal when compared to other sales it makes. Under the law, people need to file certain kinds of declarations when making bulk sales to make sure their creditors have an opportunity to collect. Someone like a farmer who has a contract to sell her entire crop to one person is not subject to this type of legislation, because the bulk sale is part of regular business activities. On the other hand, a furniture store selling its entire stock off to someone would be, because it would not usually sell off the full inventory to one buyer in the course of ordinary business.

The purpose of a bulk sales act is to prevent fraudulent transactions where people sell off their assets with the goal of preventing them from falling into the hands of creditors. Historically, this was a common situation with farm bankruptcies, where people would sell their tractors, seed, and other supplies to another farmer before creditors could arrive and seize the assets. Creditors faced with outstanding debt couldn't recover the money from the buyer, because that person accepted no liability for the debts of the seller, only taking on the assets.

Another issue with bulk sales is the potential for a so-called “sweetheart deal,” where a business owner sells off assets for a very low price in exchange for keeping a share of the business. On paper, the buyer controls the assets and business and can decide what to do with them. In reality, the business owner still plays an active role. This is another technique for evading creditors, and can leave people owed money without any legal recourse to recover it.

Many nations have a bulk sales act. Legislators can structure the law in different ways. Usually, before making a bulk sale, people must fill out declarations disclosing their creditors so the buyer is aware. They may also need to file special paperwork with tax authorities after the sale to inform them that it took place and provide information about the amount of the sale. In some cases, a bulk sales act may require people to publish public notices in the community about the sale, so creditors have a chance to come forward and collect their money.

If people are unsure about whether a bulk sales act applies to a transaction, they can ask an attorney for advice. As a general rule, if bulk sales are part of normal business operations because of the nature of a business, the law does not apply. If a business activity is unusual, the bulk sales act may come into effect. It is important to note that many bulk sales are entirely legal in nature, with no intent to defraud creditors.

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