Those buying a business or selling should beware in 2019

Business News | 17 Dec, 2018 |

A word of caution as you scan the business horizon for 2019 and think about possibly buying a business or selling one. Depending on which side of a judgment you land on, it’s either a significant asset or obligation. Like a statute of limitations for filing a lawsuit, judgments in Arizona have a lifespan during which they can be enforced. When that enforcement period runs, a judgment expires and is forevermore unenforceable unless it is renewed through one of the several processes. For decades, the enforceable lifespan of Arizona judgments has been five years from the date the judgment was entered; although a process exists for renewing these.

Joe Cotterman is a shareholder at Gallagher & Kennedy.

On August 3, 2018, without much fanfare, Arizona’s judgment renewal statutes were amended to extend the enforceable lifespan of Arizona judgments from five years to 10 years. Those amendments included a corresponding bump for the judgment renewal window. Not surprisingly, judgment renewal affidavits must now be filed within the 90 days preceding the 10-year anniversary of the judgment’s entry.

The statutory amendments don’t explain how the change affects judgments that were entered before, but still enforceable on, the date the amendments took effect. It is quite possible that any judgment still “alive” and enforceable as of the August 3rd effective date will now be enforceable for ten rather than five years from the date it was entered. However, there won’t be a clear and certain answer to that question until a court answers it.

The bump from five to 10 years may have significant consequences for both the judgment creditor and judgment debtor when it comes to buying a business and selling a business, entering into a partnership, or purchasing real property. In one sense, those consequences just doubled. For instance:

• You’re purchasing a business, and your due diligence says there are no judgment liens against the business’ real property, because the two judgments entered against the business in October 2013 weren’t renewed, and accordingly, just expired. Probably not so – that real property may very well now be encumbered by those judgment liens until October 2023.

• You’re purchasing real property, and the title report and related title policy address some just-over five-year-old judgments as though the title insurance won’t have to take those into account. Prior to August 3rd, this was a much safer assumption; not so today.

• You’re selling a business, and the business assets include a few collectible judgments entered in September 2013 that never got renewed. Don’t undervalue the business by assuming those judgments are dead, gone, and worthless.  They may well be valuable assets until at least September 2023, which can then be renewed for another ten years.

• You wait to enter into a partnership with a judgment debtor until some old judgments expire and the risk falls away. You now have to keep a watch on those old judgments for 10 years after they’re entered, not five.

• For judgment creditors, in light of the unsettled question about whether the five or ten year timeline applies to judgments that straddle the amendment date, be careful when deciding whether to renew such a judgment on a five year schedule, ten year schedule, or both; with attendant issues too lengthy to elaborate in this piece.

The short and easy answer is to keep your eyes open for a judgment and remember that whatever it means for you, it now means business for 10 years, not five.  As always, consult with your attorney on the sticky questions that changes in the law always bring about.

 

Joe Cotterman is a shareholder at Gallagher & Kennedy. He practices bankruptcy and creditors’ rights law.  He has more 25 years of experience representing clients in the areas of corporate restructuring, business bankruptcy, creditors’ rights, and commercial litigation.

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