BILL ANALYSIS Ó SB 12 Page 1 SENATE THIRD READING SB 12 (Corbett) As Amended August 7, 2012 Majority vote SENATE VOTE :34-0 JUDICIARY 7-0 REVENUE & TAXATION 5-1 ----------------------------------------------------------------- |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 SB 12 Page 2 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. SB 12 Page 3 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 SB 12 Page 4 (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 FN: 0004483