BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING
          SB 12 (Corbett)
          As Amended August 7, 2012
          Majority vote 

           SENATE VOTE  :34-0  
           
           JUDICIARY           7-0         REVENUE & TAXATION  5-1         
           
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          |Ayes:|Feuer, Atkins, Dickinson, |Ayes:|Perea, Beall, Cedillo,    |
          |     |Huber, Monning,           |     |Fuentes, Gordon           |
          |     |Wieckowski,               |     |                          |
          |     |Bonnie Lowenthal          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |Nays:|Harkey                    |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           
          SUMMARY  :  Revises and recasts selected provisions of the 
          California Bulk Sales law (Division 6 of the Commercial Code), 
          including limiting the application of escrow requirements, 
          primarily to transactions by wholesalers licensed under existing 
          alcohol and tobacco control laws.  Specifically,  this bill  :

          1)Defines "licensee" as a person who holds a wholesaler's 
            license under the Alcohol Beverage Control Act (Division 9 of 
            the Business and Professions Code), or who is licensed as a 
            wholesaler or distributor of cigarettes and tobacco products 
            under the Cigarette and Tobacco Products Licensing Act 
            (Chapter 3 of Division 8.6 of the Business and Professions 
            Code).

          2)Recasts existing escrow and liability provisions in the Bulk 
            Sales law so that they apply to every bulk sale, as defined, 
            that includes inventory or equipment purchased or obtained 
            from a licensee. 

          3)Specifies procedures for disputed claims, and claims involving 
            escrow, including cases in which the cash deposited or agreed 
            to be deposited is not sufficient to cover claims filed with 
            the escrow agent.  Limits these claims, as defined, to 
            specified persons having a right to payment from the seller, 
            including taxing entities, secured creditors, licensees (as 








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            defined above), and employees having wage claims.

          4)Establishes that these provisions shall apply to a bulk sale 
            if the date of the bulk sale agreement is on or after January 
            1, 2013.

           EXISTING LAW  , Division 6 of the Commercial Code (also known as 
          Uniform Commercial Code--Bulk Sales Act), governs bulk sales 
          transactions in the state.  Among other things, the Bulk Sales 
          Act:

          1)Applies to bulk sales transactions, except as otherwise 
            provided, if:  a) the seller's principal business is the sale 
            of inventory from stock, including those who manufacture what 
            they sell, or that of a restaurant owner; and b) on the date 
            of the bulk sale agreement, the seller is located in this 
            state, or if not, the seller's executive office is in this 
            state.  

          2)Requires a buyer to an applicable bulk sale transaction to 
            provide a notice of the bulk sale that specifies, among other 
            things:  a) the name and business address of both the seller 
            and the buyer; b) the location and general description of the 
            assets; c) the place and the anticipated date of the bulk 
            sale; and, d) whether or not the bulk sale is subject to 
            provisions relating to sales of $2 million or less, as 
            specified.  

          3)Requires buyers, at least 12 business days before the bulk 
            sale date, to provide notice of the bulk sale by doing all of 
            the following:

             a)   Record the notice in the county recorder's office where 
               the assets are located and, if different, in the county in 
               which the seller is located;

             b)   Publish the notice at least once in a newspaper of 
               general circulation published in the judicial district 
               where the assets are located or, if different, in the 
               judicial district, in which the seller is located; and, 

             c)   Deliver or send the notice by registered or certified 
               mail to the county tax collector in the county or counties 
               in which the tangible assets are located.








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          4)Provides that a buyer who fails to comply with provisions of 
            the Bulk Sales Act is liable for damages in the amount of the 
            claim, reduced by any amount that the claimant would not have 
            realized if the buyer had complied, subject to the good faith 
            exception and other specified limitations.  

           FISCAL EFFECT  :  None

           COMMENTS  :  According to the author, California's bulk sales law 
          has largely outlived its usefulness for many creditors for whom 
          it was intended to protect, particularly in light of more modern 
          legal protections for creditors since enacted at the state and 
          federal levels.  Proponents of the bill contend that, on 
          balance, the Bulk Sales law's purported benefits to creditors do 
          not appear to justify the obligations the law imposes on buyers. 
           As introduced, this bill, sponsored by the California 
          Commission on Uniform State Laws (Uniform Law Commission), would 
          have repealed the Bulk Sales law in its entirety.  Instead, 
          after negotiations with multiple stakeholders, the bill now 
          revises certain sections of the Bulk Sales law to modestly 
          narrow its scope, particularly with respect to the applicability 
          of escrow and liability provisions.  

          As amended, the bill no longer relaxes notice requirements under 
          the Bulk Sales law; all current notice requirements will 
          continue to apply to all bulk sales transactions, including 
          recordation in the county recorder's office, publication in a 
          newspaper of general circulation, and notice by delivery or mail 
          to the county tax collector.

          As amended, the bill preserves existing escrow and liability 
          provisions of the Bulk Sales law but limits their application to 
          distributors and wholesalers who are licensed either under the 
          Alcohol Beverage Control Act or the Cigarette and Tobacco 
          Products Licensing Act, rather than continuing to apply them to 
          all bulk sales transactions.  By its own terms, this bill would 
          apply to a narrower set of bulk sale transactions than under 
          current law, and primarily in the sector of alcohol and tobacco 
          suppliers and retailers, where somewhat unique tax liabilities 
          and concerns about tax collection arguably justify a more 
          cautious approach rather than repeal.

          According to the California Beer and Beverage Distributors 








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          (CBBD) and the California Distributors Association (CDA), its 
          member distributors rely heavily on the protections of escrow 
          and notice under the current bulk sales law, which help them 
          secure their claims for accounts receivable from alcohol 
          retailers that they supply with inventory.  CBBD notes that with 
          respect to distributors of alcohol products who are also 
          regulated by the Alcoholic Beverage Control Act, existing law 
          requires them to extend 30 days or more of credit to retail 
          licensees that inventory alcoholic beverages for resale, 
          generating accounts receivable that can range into the thousands 
          or tens of thousands of dollars.  In addition, the distributors 
          note that, unlike some products, both alcohol and tobacco 
          products have excise taxes that must be paid prior to retail, 
          leaving the distributor liable for those taxes if the seller 
          absconds without paying.  In response to these concerns, the 
          author has amended the bill to no longer repeal the Bulk Sales 
          law and allow licensed distributors to continue to avail 
          themselves under the escrow and notice provisions, as specified.

          Finally, the bill provides that this act shall apply 
          prospectively to bulk sales where the date of the bulk sale 
          agreement is on or after January 1, 2013.  Existing provisions 
          distinguishing between transactions occurring before or after 
          January 1, 1991 (the last time the Bulk Sales Act was amended) 
          are no longer necessary and are repealed by this bill.


           Analysis Prepared by  :    Anthony Lew / JUD. / (916) 319-2334 


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