Suppose the purchaser and the target have a key supplier in common but the target is in financial straits and in arrears to the supplier. A purchaser may need the supplier to continue to sell supplies to the target’s business after closing. The vendor may insist on being paid the full amount owed in order to continue to sell supplies. Should the seller pay the common supplier either shortly before closing or from the proceeds of the sale, preferring that common supplier over other creditors? Depending on how severe the seller’s financial condition is, a payment to a preferred creditor could later be overturned. The better practice in this scenario is for the purchaser to voluntarily pay the creditor after the closing, which should not be subject to attack. In this way, the purchaser can ensure a steady flow of supplies from the key vendor.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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