What Is an Affidavit of No Creditors?
An affidavit of no creditors is a sworn statement made by the seller of a business — typically in connection with a business asset purchase — in which the seller represents under oath that the business has no outstanding debts, liabilities, or obligations to creditors that have not been disclosed to the buyer or that will remain unpaid after closing. It is one of several closing documents used in business acquisitions to help protect the buyer against undisclosed liabilities that could attach to the purchased assets after the transaction closes.
An affidavit, as defined under U.S. law, is a written declaration of facts made voluntarily and confirmed under oath before a notary public or other authorized officer. The consequences of making a false statement in an affidavit include potential criminal liability for perjury. As defined by Black’s Law Dictionary, an affidavit is a written or printed declaration or statement of facts, made voluntarily, and confirmed by the oath or affirmation of the party making it.
Russo Law LLC prepares and reviews affidavits of no creditors and other closing documents for business acquisitions throughout New York and New Jersey.
Why Is an Affidavit of No Creditors Used?
In a business asset purchase, the buyer generally does not acquire the seller’s liabilities — but there are exceptions and risks. Certain types of obligations can potentially follow the assets of a business regardless of how the deal is structured, including:
- UCC security interests and liens filed against business assets by the seller’s lenders
- Unpaid sales taxes that may become the buyer’s obligation under successor liability rules in some circumstances
- Unpaid wages or benefits owed to employees
- Judgment liens against the seller
- Unresolved trade creditor obligations
An affidavit of no creditors provides the buyer with a sworn representation that none of these hidden obligations exist — or that all outstanding obligations have been identified and will be satisfied at or before closing. If the seller’s representation turns out to be false, the buyer may have legal remedies against the seller, in addition to any indemnification rights under the asset purchase agreement.
Affidavit of No Creditors vs. UCC Lien Search
An affidavit of no creditors and a UCC lien search serve complementary but distinct purposes.
A UCC lien search is an independent verification process — the buyer searches public records to identify any UCC financing statements filed against the seller’s assets.
The affidavit of no creditors is a sworn representation by the seller that no undisclosed liabilities or claims exist.
Both are important components of a thorough closing checklist in a business acquisition:
- The UCC search tells the buyer what creditors have publicly filed claims against the seller’s assets
- The affidavit of no creditors addresses liabilities that may not yet have been reduced to a public filing — such as unpaid trade creditors, disputed invoices, or unresolved employee claims
Where It Fits in the Closing Process
An affidavit of no creditors is typically delivered by the seller at or just before closing, as part of the closing deliverables package. It is one of several seller certifications and closing documents required by the buyer as a condition to closing under the asset purchase agreement. Other related closing documents include:
- Bill of sale — transferring title to tangible assets
- Assignment and assumption agreement — transferring contracts and assumed liabilities
- Unanimous written consent — authorizing the transaction on behalf of the selling entity
- Closing certificate of no material adverse change — certifying that the business has not materially changed since the purchase agreement was signed
Frequently Asked Questions — Affidavits of No Creditors
Is an affidavit of no creditors required in every business sale?
It is not required by law in every transaction, but it is standard practice in most business asset purchases and is strongly recommended as a buyer protection. Sophisticated buyers and their counsel will typically include an affidavit of no creditors as a required closing deliverable in the asset purchase agreement. It provides an additional layer of protection beyond UCC searches and due diligence, particularly for liabilities that may not yet be reflected in public records.
Does an affidavit of no creditors protect the buyer from all unknown liabilities?
It provides important protection, but it is not a substitute for thorough due diligence. An affidavit creates a sworn representation by the seller and may give the buyer a legal remedy if the seller’s representation turns out to be false. However, it does not guarantee that all liabilities have been identified — which is why buyers should also conduct UCC searches, review tax records, request estoppel certificates from major creditors, and negotiate robust indemnification provisions in the asset purchase agreement. The appropriate scope of buyer protections in any specific transaction depends on the facts and should be reviewed with an attorney.
Schedule a Free Consultation
If you are buying or selling a business in New York or New Jersey and have questions about closing documents including affidavits of no creditors, call 929-262-1101 or schedule a free consultation with Russo Law LLC.
The information on this page is general in nature and does not constitute legal advice. Every situation involves unique facts, and no specific strategy or recommendation can be made without a full review of your circumstances.