Who becomes liable to pay a company's debts when it is sold?

Question Details: My husband is owed over $25,000 by a company. We have recently heard that the owner of this company is trying to sell the business. Would the debts be wiped clean? Would the new owner have to pay the previous owner's debt? Or would the debt stay with the previous owner personally?

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Answers by Lawyers

Community Law Wellington & Hutt Valley

Liability for the debt depends on how the company is sold.

The debt, assuming it is well founded and less than 6 years old, will not be wiped clean. However, the question of who is liable to repay it will depend on the nature of the sale of the company concerned.

If it is a share sale (that means the owner is simply selling the shares in the company), then the company will continue to be liable for the debt because the company will continue to exist (just under different ownership).

If it is an asset sale (that means that the assets the company owns are being sold to another company or person), the liability will stay with the previous company. In the event of an asset sale, you will still be able to seek repayment as long the company continues to exist. However, given that the company will have sold all of its assets, the likelihood of you being able to recover your debt is much lower.

For more information on debt collection and recovery, please visit this website: www.communitylaw.org.nz.

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