When Hiring a Sales Person is Virtually a Strategic Acquisition: Beware the Former Owner's Baggage!

"I'm not really interested in buying that guy's business," an NAPL client tells me, casually dismissing M&A nuances like due diligence and legal documentation. "I'm just going to hire him as a sales person and will get the accounts anyhow. What's wrong with that?"

This question comes up a lot. Let me address it once and for all: hiring a sales person who is the former owner of a printing business is virtually a strategic acquisition. Yes, the customers are likely to follow this person from his/her former business to yours. That's the good news. The bad news is that the creditors of the former owner may be coming after you IF YOU DO NOT TAKE STEPS TO MITIGATE THE RISK. 

"How could the "sales person's" creditors come after my business?", you ask.

There are two main legal risks:

1. "Successor Liability" under various state laws that are mostly case by case judicial opinions

2. "Fraudulent conveyance" under Bankruptcy laws

Take a look at my email that went to a client this morning: "You should be very careful about hiring this person [former owner] as a sales rep. The trustee in bankruptcy has the legal means to investigate the terms of the employment you are offering, to ascertain whether VALUE belonging to creditors is being taken by the former owner/sales person. If so, it can get very ugly. Oh, and be sure to buy the general intangibles from the bankruptcy trustee, even for nominal value. Otherwise, the trustee can sell the intangibles (customer list) to a competitor other than you, even if you just hired the person. Think this can't happen? It did with a company in Northern California a few years ago."

The steps necessary to mitigate or eliminate these risks won't break the bank. Call me to avoid this messy stuff. After all, you're just hiring a sales person, right?