Seller liability under section 39 UGB: time limits for business debts

Section 39 UGB applies when the buyer takes over business-related legal relationships, including rights and liabilities established before the transfer. Under section 38(1) UGB, a buyer who continues a business acquired inter vivos generally assumes its business-related, non-personal legal relationships, unless the parties agree otherwise. The former owner remains liable for the associated debts to the extent set out in section 39.

This is a statutory and time-limited form of continuing seller liability. It does not cover every claim discovered after closing. A valid objection to the transfer of a contractual relationship may leave that relationship with the seller under section 38(2); this differs from liability for a relationship taken over by the buyer under section 39. Sections 38 and 39 also do not apply to acquisitions in enforcement or insolvency proceedings, or while the debtor is supervised by a creditors' trustee (section 38(5)). Continuation by lease, loan for use, usufruct, a right of use, or termination of those contracts does not count as an acquisition under section 38(1) (section 38(5a)). Liability under other provisions remains unaffected (section 38(6)). The first step is to identify the transaction structure and whether the business is actually continued.

Section 39 UGB focuses on when the debt falls due. It must fall due before five years have elapsed from the business transfer. The date on which the obligation was created is not enough by itself. A pre-transfer business debt that falls due four years later is within the window. If that type of pre-existing debt falls due five years and two months after the transfer, it is outside the continued liability governed by section 39.

The applicable contract or other legal relationship determines maturity. Deferred debts and instalments require attention to the agreed payment dates and terms. An accounting entry, invoice or later discovery of a debt does not automatically establish its due date.

Section 39 UGB adds a maximum limitation period to the five-year maturity window. The limitation period applicable to the particular debt is the starting point. Claims arising from the seller liability may not remain enforceable for more than three years under this provision.

Section 39 does not establish a separate three-year period that always begins on the transfer date. A concrete calculation requires the claim and the rules governing when its limitation period begins. The five-year period determines when the debt must fall due. It does not create a general total period of five plus three years.

Warranties and indemnities in the purchase agreement allocate risk between buyer and seller. They do not automatically change a creditor’s rights. Under section 38(4) UGB, an agreement excluding the buyer’s liability for a debt connected with a legal relationship that was not taken over is effective against a third party only if it is entered in the commercial register at the time of transfer, made public in a customary manner, or notified to the third party by the seller or buyer.

Section 38(4) concerns buyer liability where a business relationship is not taken over. That issue must be kept separate from the seller’s continuing liability under section 39. Our guide to the warranty and indemnity catalogue explains how contractual protections can be structured between the parties.

A reliable review starts with a schedule of business debts. For each item, record its legal basis, when it was established, its due date, any deferral and any security. Keep evidence of the transfer date and the relevant contract documents. Where payment is deferred or split into instalments, do not infer maturity from a balance sheet alone.

Buyer and seller can compare this schedule with the disclosures and risk allocation in the purchase agreement. The due diligence checklist helps organize the review documents and open issues. Our guide to legacy liabilities in an asset deal addresses the buyer’s statutory exposure.