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Risk Management Blog

UCC & Corporate Due Diligence

Resource Guide for Legal and Financial Professionals

Identifying Mechanic Liens for Liquor License Transfers: Why are they important?

Due Diligence

When transferring a business with a liquor license there are a few considerations you need to be aware of in regards to lien searching. The California Alcoholic Beverage Control (ABC) can deny a liquor license transfer to a new applicant if all conditions are not met. This reality is why due diligence for liquor license transfers is so important when searching for liens against debtors, especially Mechanics Liens, even though Mechanics Liens may not always be present in State and County search results you order.

First, here’s a little background on the California Business and Professions Code (BPC). The BPC governs the transfer of all liquor licenses with or without a business. Many times the liquor license will transfer concurrently with the transfer of the business assets and the BPC usually will take precedence over the Uniform Commercial Code in these instances. The BPC lists Mechanics Liens in the fourth priority creditor position, while the UCC does not specifically list Mechanics Liens. The BPC takes priority over the UCC in this example. When using a pro rata distribution you must pay the creditors in a specific priority order from first to last. Failure to do so puts the liability on the escrow.

In that case, discovering the Mechanics Lien is crucial yet can be missed in a search. Mechanics Liens are filed at the county level, so if you (or your service provider) are conducting searches at the state level only you could be at risk of missing a Mechanics Lien. And as stated earlier, missing a lien could jeopardize the successful transfer of a liquor license.

First Corporate Solutions incorporates the requirements of the code into our search logic so there are no surprises when it comes to escrow transactions. For more information, check out additional reference materials here.




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