When the sale of a business is structured as an asset sale, one of the most important considerations to the purchaser is whether it will assume any of the seller’s liabilities outstanding at the time of sale. Specifically, the purchaser will want to ensure that all of the seller’s tax liabilities are satisfied prior to such sale.

One of the steps commonly taken by purchasers to accomplish this is to comply with the Illinois Bulk Sales Act, which involves filing notice of the asset sale with the Illinois Department of Revenue. In response, the Department of Revenue may require that the purchaser withhold funds from the purchase price to be used to satisfy the seller’s outstanding state income and sales taxes. Failure to comply with these requirements could render the purchaser liable for such obligations.

However, what many purchasers and their legal representatives do not know is that compliance with the Bulk Sales Act is not always sufficient to protect purchasers in an asset sale. In fact, certain steps must be taken in accordance with the Illinois Unemployment Insurance Act (the “Act”) to ensure that the purchaser is not held liable for the seller’s outstanding debts to the Illinois Department of Employment Security. Compliance with the Illinois Bulk Sales Act is not sufficient for the purchaser to avoid such transferee liability.

Under Section 2600 of the Act (820 ILCS 405/2600), an employing unit which sells or transfers substantially all of its assets outside of the ordinary course of business shall, within 10 days of such sale or transfer, pay in full its outstanding liability to IDES, including all contributions, penalties, and interest due as of the closing date. In addition, the purchaser is to withhold from the purchase price a sufficient amount to cover such seller’s liability to IDES. If consideration for the sale does not involve money, the purchaser should instead withhold performance of the condition that constitutes such consideration. This money or performance should be withheld until the seller produces a receipt from IDES evidencing that its liability has been paid in full.

If the seller does not pay its liability in full within 10 days of closing as required by the Act, the purchaser shall use the funds withheld from the purchase price to pay said liability. If no funds are withheld from the purchase price and as a result the purchaser does not satisfy the outstanding liability within 10 days of closing, then the “purchaser or transferee shall be personally liable” to the IDES for the liability, up to the fair market value of the assets transferred. The assumption of such a liability could be devastating to the purchaser and its owners.

Compliance with the Act is just one of many crucial issues that must be addressed in the purchase of the assets of a business. For assistance in properly structuring such a transaction in a way that minimizes the purchaser’s liability, please contact our office.