Pub. 6 2016 Issue 3

9 satisfy seller’s debts secured by the liens. Such liens must be paid and properly removed before closing to ensure the assets are con- veyed to the buyer free and clear of encumbrances. Buyers can also be obligated as a matter of successor liability for the seller’s tax liabilities. This could include sales taxes, use taxes, income and employment taxes, or franchise taxes. Tax clearance certificates or releases stating the buyer has no liabil- ity for seller’s tax liabilities should be required under the parties’ buy-sell agreements and obtained before the closing. Sometimes, an escrow of funds will also be necessary to afford buyer further protection against seller’s tax liabilities. Successor liability considers the buyer responsible for the seller’s obligations. Cautious buyers will ensure adequate con- tractual provisions are included in the buy-sell agreements and necessary due diligence and other steps are performed prior to closing to protect themselves against this liability. Julie A. Cardosi is Principal of the private firm, LawOffice of Julie A. Cardosi, P.C., of Springfield, Illinois, and has exclusively represented the unique business interests of automobile dealers state-wide for over 25 years. Formerly in-house staff legal counsel for the Illinois Automobile Dealers Association, she concentrates her practice in the areas of dealership ownership transfers (asset purchases and stock acquisitions), mergers and acquisitions, franchise law and franchise issues, factory relations, corporate law, add points, commercial real estate transfers, government regulation, advertising, and other issues impacting day-to-day dealership operations. She is also a former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. Dealers may wish to seek the advice of their own counsel on the subject matter of this article. under the federal Fair Labor Standards Act. The parties’ buy-sell agreement should contain provisions, among others, in which the seller represents and affirms compliance with all federal and state labor and employment laws. Of course, there should also be pro- visions entitling the buyer to relief in the event these assurances by the seller are false. Such a provision might include for example indemnities by the selling entity and its principals and owners. The effectiveness of these protections can hinge on whether the indemnifying parties have the capacity (financial and otherwise) to deliver on their obligations to indemnify and defend. There are other protections against successor liability the parties can negotiate and the lawyers can craft into the buy-sell agreements. Another area in which successor liability for the seller’s un- secured creditor’s claims can arise includes the circumstances where the buyer does not comply, or waives compliance, with applicable state bulk sales laws. By failing to comply or waiv- ing compliance the buyer may forfeit the protection granted by these laws. Additionally, successor liability of the buyer might arise as to the seller’s secured creditors’ claims if creditors’ liens are not properly removed before closing of the buy-sell. In that instance, the assets are conveyed to the buyer subject to those liens and encumbrances. As part of the parties’ buy-sell agreements, pro- visions should be included requiring the assets to be conveyed free and clear of such liens and encumbrances, and buyers must, as a matter of due diligence, perform proper UCC searches to determine whether any lien notices have been filed. Properly secured creditors could seize assets purchased by the buyer to 