When a business in New York decides to liquidate through an auction, one of the most overlooked challenges involves how to manage outstanding customer obligations — including pending orders, prepaid gift cards, deposits, and service liabilities. While auctioning assets helps recover value quickly, state law and consumer protection rules require business owners to resolve these commitments before and during the sale process.
1. Addressing Pending Customer Orders Before Auction
Before scheduling an auction, businesses must identify all open customer transactions. This includes orders paid in advance, services not yet rendered, and goods still in production or delivery. The New York General Business Law (GBL) and Uniform Commercial Code (UCC) require that buyers who prepaid for goods or services either receive the product or a refund.
Retailers, restaurants, and service providers preparing for auction should suspend new orders at least 30 days before closing. Auctioneers such as BestBuy Auctioneers, A.J. Willner Auctions, and Auction Advisors typically recommend that sellers clear pending obligations prior to transferring assets, as post-sale disputes can delay fund disbursement and complicate final settlement with creditors.
2. Managing Gift Cards and Store Credits
Gift cards represent a common form of outstanding liability. Under New York State General Business Law §396-i, unused gift card balances cannot expire within nine years of issuance, and businesses are prohibited from imposing dormancy fees. When a business closes, holders of unredeemed cards are considered unsecured creditors.
If the auction proceeds are used to satisfy liabilities, unredeemed gift card balances should be included in that distribution. Business owners must notify customers via email, website postings, or physical signage, providing clear deadlines for redemption prior to closure. In some cases, owners may remit remaining balances to the New York State Comptroller’s Office as unclaimed funds through the Office of Unclaimed Funds (OUF) after dissolution.
National chains such as Bed Bath & Beyond and Century 21 followed similar procedures during their liquidation events, offering a redemption window before final closure and transferring remaining liabilities to state authorities.
3. Handling Deposits, Memberships, and Service Contracts
Businesses in industries such as fitness, hospitality, and event planning often hold customer deposits or long-term memberships. When liquidating through auction, these funds are treated as liabilities that must be settled before distributing auction proceeds.
Under Article 11 of the New York General Business Law, prepayments for health clubs, lessons, or facility rentals must either be refunded or honored by a successor operator if one is appointed. Auctioneers typically coordinate with legal counsel or receivers to ensure such commitments are documented and disclosed to bidders purchasing business assets.
In cases where another operator acquires the business’s customer database and equipment through auction, that buyer may voluntarily assume existing contracts to retain goodwill. However, this arrangement must be clearly stated in the auction’s terms of sale to avoid confusion or future claims.
4. Prioritizing Creditors and Liabilities in Auction Proceeds
After the auction closes, proceeds are first used to satisfy secured creditors, such as lenders with liens on equipment or real property. Once those debts are paid, remaining funds are distributed to unsecured creditors, including customers with unfulfilled orders or gift card balances.
Auction firms like Hilco Global, Tiger Group, and Heritage Global Partners often work alongside bankruptcy trustees or financial advisors to ensure compliance with Article 9 of the UCC and state dissolution statutes. Accurate recordkeeping of liabilities before the auction ensures proper allocation of proceeds and minimizes post-sale disputes.
5. Communicating Clearly With Customers and Stakeholders
Transparent communication is essential to maintaining goodwill and avoiding consumer complaints. New York businesses must post notices at physical locations and on digital platforms explaining the closure timeline, auction details, and refund process.
The New York Attorney General’s Office (NYAG) enforces consumer protection rules and may intervene if customers allege deceptive or incomplete disclosures. A detailed written plan — reviewed by legal counsel and the auctioneer — should outline how all deposits, gift cards, and prepayments will be handled before the sale.
6. Coordinating With the Auctioneer and Legal Counsel
Auctioneers play an important administrative role during closure, ensuring that all obligations are documented before marketing assets. Firms such as Rosen Systems and Industrial Recovery Services often require sellers to disclose known liabilities as part of their engagement agreement.
Legal and financial advisors should assist in preparing creditor lists and settlement records to ensure compliance with the New York State Department of Taxation and Finance, Department of State, and applicable consumer protection laws.
7. Closing the Business and Filing Dissolution Documents
After proceeds are distributed and liabilities resolved, business owners must formally close their entity. Corporations file a Certificate of Dissolution, and LLCs submit a Certificate of Cancellation with the New York Department of State.
Remaining funds owed to uncontacted customers or creditors must be transferred to the Office of Unclaimed Funds. This ensures compliance and shields former owners from future claims once the business is officially dissolved.
Managing customer obligations during a business auction in New York requires coordination between the auctioneer, legal counsel, and financial advisors. By resolving outstanding orders, gift card balances, and deposits in advance, business owners protect themselves from liability while ensuring a clean, compliant closure. Proper planning not only secures consumer trust but also facilitates a smoother liquidation process — allowing auction proceeds to be distributed efficiently and transparently.
Looking for an experienced business auctioneer who can produce powerful sales results?
Contact me today, and I will connect you right away with an amazing business auctioneer who I have referred many clients to!
917-913-6093