Avoiding Legacy Debt: How Due Diligence Saved Our Client Thousands

Imagine buying a business, only to find yourself pursued for unpaid debts that weren't yours to begin with. This scenario nearly unfolded for one of our clients, who was weighing the option to purchase a company outright versus acquiring only its assets. Facing a tight deadline, we discovered that significant loans were attached to the company’s assets, risking repossession by a lending agency if left unresolved.

To safeguard our client, we ensured that all outstanding equipment financing was cleared by the previous owners before the deal closed. However, a lingering $100,000 debt posed additional risk. Despite this, our client was determined to move forward, so we crafted a structured agreement: the remaining loan would be paid off shortly after completion, with the vendor’s assets secured as collateral. If the debt wasn’t settled in time, we could reverse the deal or take legal action.

Thanks to this plan, our client successfully purchased the business without inheriting past financial baggage. The takeaway? Thorough due diligence can be the difference between a successful acquisition and a costly liability. Engaging legal support early on ensures that you’re protected from any “sins of the past” and sets your new venture on solid ground.