You found a buyer.
The price looks good.
You’re ready to close.
But before you shake hands and transfer everything, there’s one law you cannot ignore:
The Bulk Sales Law.
And if you get it wrong, the sale can be declared void — and you could even face criminal liability.
Let’s break this down in plain terms.
Why This Law Exists
The Bulk Sales Law was created to stop one specific problem:
A business owner sells all his inventory or assets in one go…
collects the money…
and leaves creditors unpaid.
To prevent that, the law requires transparency and fairness when a business sells “in bulk.”
It protects suppliers, lenders, and other creditors from being left behind.
Does the Law Apply to You?
Not every sale triggers the Bulk Sales Law.
It applies if you are selling:
- All or substantially all of your inventory
- All or substantially all of your business
- All or substantially all of your equipment and fixtures
- Or if you’re selling inventory outside the normal course of business
In short:
If you’re transferring most of the business in one transaction, the law likely applies.
If you’re just selling products in your ordinary daily operations? It doesn’t.
When the Law Does NOT Apply
There are limited exceptions:
- If all creditors sign a written waiver; or
- If the sale is done by court-appointed officials (like receivers or executors)
Outside of these situations, compliance is required.
If It Applies, Here’s What You MUST Do
There are four key steps.
1. Give the Buyer a Sworn List of Your Creditors
Before receiving payment, you must give the buyer a sworn statement listing:
- All creditors
- Their addresses
- The exact amounts you owe
No sworn list? The sale can be declared fraudulent.
2. Notify Your Creditors at Least 10 Days Before the Sale
You must:
- Prepare a detailed inventory of what you’re selling
- Notify each listed creditor about the sale
- Disclose the price and terms
Creditors must know before you transfer the assets.
3. Use the Sale Proceeds to Pay Creditors Proportionately
You cannot simply collect the purchase price and walk away.
The law requires that the money be applied pro-rata to legitimate creditors listed in your sworn statement.
4. Record the Sworn List with the DTI
The sworn listing must also be recorded with the Department of Trade and Industry.
While failure to record may not automatically void the sale, it still exposes you to legal risk.
What Happens If You Ignore the Law?
Here’s where it gets serious.
If you fail to prepare and deliver the sworn list — or fail to apply the proceeds properly — the sale is:
Fraudulent.
Void.
Legally ineffective.
That means ownership may not validly transfer.
On top of that, you may face:
- Imprisonment of 6 months to 5 years
- A fine (or both)
And good faith is not a defense.
Even if you had no intention to cheat anyone.
One More Warning
It is also illegal to transfer business assets in bulk:
- Without payment; or
- For a purely nominal amount
You cannot “paper transfer” your business to avoid creditors.
The Bottom Line
Selling your business is a strategic move.
But if you are transferring most or all of your assets, the law assumes creditors may be at risk — and it steps in.
Before closing:
- Check if the sale qualifies as a bulk sale
- Prepare the sworn creditor listing
- Notify creditors properly
- Apply proceeds correctly
A properly structured sale protects you.
A rushed sale can collapse — and create liabilities you never expected.
Before you sign, make sure you’re legally covered.