Can a company that buys a business refuse to pay the outstanding bills for that business?

My colleague is correct. There is a difference between purchase of the whole business and an asset purchase. If this was an asset purchase former owner is still legally responsible and you can sue them in small claims court. If this transaction was required to comply with CA Bulk Sales law and did not, new owner may also be liable. I would sue old and new together in small claims and let them point fingers at each other for liability. The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of California. Responses are based solely on California law unless stated otherwise.

What does the sale agreement say? The outstanding liabilities would have been addressed in the sales agreement, so whoever told you that the seller wasn't responsible for outstanding bills clearly thinks that the buyer agreed to indemnify the seller for these debts. The agreement should also have disclosures about what debts are left, and an attorney's fee clause for the prevailing party in any dispute, if the seller did NOT disclose these debts and/or if the buyer did NOT agree to indemnify the seller. Read your agreement, or hire a lawyer to help you. Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

Unless the new entity acquires the debts of the other entity, then it is not responsible, as a general rule. However, there are exceptions to this general rule and they can be very intense questions of the facts and the documents involving how they are perceived to the public Why can't you continue to pursue the original business entity for the money owed? If it sold the business, it should have some funds to settle your debt. File a small claims case against the prior business entity for the money owed. If the current owner says they will not pay the prior business's debts, they should at least give you the name and contact information of the prior owner.

First find out if it was a stock purchase or an asset purchase. You need to get a copy of the purchase agreement. Generally speaking, if it was a stock purchase (meaning stock of an entity was sold rather than just assets) the buyer probably owes you the money. If it was an asset purchase it depends on a number of things. Was it secured or unsecured debt? If it is unsecured debt (meaning there is no lien on the assets to secure the debt), ask the buyer for a copy of the bulk sale notice. Depending on the size of the transaction, the publication or delivery of a bulk sale notice is required to absolve the buyer of the seller's unsecured debts. If a notice was published at least 12 business days before the close of escrow in the proper newspaper and the notice is prepared properly, or the buyer otherwise complied with the bulk sales law, the buyer is not liable for the seller's debts unless the buyer specifically assumed them in the contract. If it was secured debt, then the lien follows the asset unless it was removed prior to closing and you can force sale of the asset to pay the debt.

Sometimes a buyer will come in and buy the assets of a business. If the buyer bought only the assets of the business, and isn't continuing the same business, it's probably not going to be held responsible for the old business's debts and contractual obligations. If the buyer bought the whole business, assets as well as liabilities, that's a horse of another color. When you say, "the business was bought and taken over as of [date]," that can mean multiple things. Who owned the business when it incurred liabilities to you? Who owns it now? Were only assets purchased, or was the whole enterprise purchased so that the public seems to have been dealing with the same entity all along? The answer to the question, who's liable for these outstanding bills? turns on these facts. That's not legal advice as I'm not licensed in California. It's just my analysis of the facts you presented above in light of general principles of law. If you need legal advice, please consult a lawyer who holds California licensure. Good luck.