Tuesday, August 3, 2010

Rights of Third Parties to Assets Purchased by Your Company

When your business purchases assets, or when you purchase a business, you likely assume that the assets are being purchased "free and clear", but that is not always the case. A search of UCC filings with the Secretary of State and the applicable county real property records can likely rule out bank liens. However, litigation claimants, governmental agencies (e.g. the State Comptroller with regard to unpaid Sales Taxes) and other potential third parties make up a secondary pool of parties with potential rights in purchased assets.
You can often have your seller provide warranties and representations relating to any such claims and hire companies in the business of performing detailed searches to rule out such claims. We always recommend using competent legal counsel in order to draft such warranties and representations and to review such search results.