This article is written by Brad Gross, who is founder and president of the Law Office of Bradley Gross, P.A., a business technology law firm.
Let me paint a picture that you might, unfortunately, have seen before. You’ve got a client under a multiyear managed services agreement. Everything seems fine until one day you find out that your client sold its assets and unilaterally terminated its agreement with your company. You say, “You still owe me money,” but your customer says, “We’ve got no assets, and the company that bought us doesn’t want to use your services.”
And just like that, the recurring revenue you were counting on disappears.
What can you do to recover the money you are owned, and which you planned to receive, when your customer sells its assets and tries to walk away from your contract? Here’s a hint: A customer’s asset sale is not a magic eraser for its legal obligations.
Why MSPs Are Left Holding the Bag: 3 Vulnerabilities in the Business Model
MSPs are particularly vulnerable to this scenario for several reasons. First, managed services agreements (MSAs) commonly run for two or three years. The longer the contract term, the more opportunity a customer has to decide, often unexpectedly, to wind down operations and sell its assets while the MSA is still in force.
Second, MSP customers are typically small and midsized businesses (SMBs). Historically, SMBs give little thought to how long-term vendor agreements will be affected by an asset sale. When presented with a viable exit opportunity, they tend to proceed without considering that they are, and will remain, bound by multiyear managed service contracts—including yours.
Third, while many managed services agreements address service delivery and performance standards, they often say nothing about customer acquisitions or asset sales. That’s because these agreements are usually drafted with the start of the relationship in mind, but fail to account for the very real possibility that the relationship may end through a sale or transfer of the customer’s assets.
When a client sells its equipment, customer lists, or intellectual property, the MSP is often the one left holding the bag. Frequently, the MSP is the last creditor to learn of the sale. Only then does the customer declare, “I sold my assets and have nothing left to pay you, so you should terminate our managed services agreement.”
If you find yourself in that position, what should you do?
It’s Not About Liability
Let’s begin with a crucially important point: A customer cannot get out of its contractual obligations by selling its assets and then claiming that it has no ability to continue under its MSP’s services agreement. (That would be like setting fire to your house and then pleading for mercy because you don’t have anywhere to live.) When a company sells its assets, it remains liable for all of its payment obligations. Those obligations don’t disappear because the company intentionally divested itself of its assets.
So the real issue isn’t about liability, since liability survives the asset sale. Instead, the real issue to consider is collectability.
Collecting the Debt: A Strategy
If you find yourself in the unenviable position of enforcing an agreement against a customer that sold its assets, you have options.
For example, if your MSA includes an early termination fee, you and your customer have already agreed, up front, to a specific, fixed, and enforceable obligation. If the customer sells its assets and then pleads poverty, that provision becomes enormously valuable.
Should the dispute end up in court or arbitration, you can make a strong case that the customer expressly agreed to the debt and, therefore, you are entitled to a judgment for the full termination fee. This is preferable to being forced to argue that the asset sale and contract termination caused you to lose future revenue that you were counting on. That type of argument is frequently viewed as being speculative, and speculation is disfavored under the law.
This is precisely why MSPs with well-drafted agreements tend to prevail in these disputes, while MSPs without them often do not.
What Leverage Do You Have with Your Customer?
Now let’s pause and focus on where additional, and often overlooked, leverage can be applied. To do that, we need to look at both sides of the transaction: the seller (your customer) and the buyer (the company that purchased your customer’s assets).
Imagine a conversation between you, the MSP, and a customer who claims it has no money because it sold its assets.
The customer says: “Listen, I sold my company’s assets, so there’s nothing left here. The business is effectively defunct. You should just terminate the agreement. Sorry about that.”
Your response starts with a simple question: “So where did the money from the asset sale go? You received proceeds from the sale, correct? Where are those funds now?”
Before the customer can answer, you connect the dots for them: “I know where the money went. The sale proceeds were distributed to you and the other owners. By doing that, you moved assets out of the company and away from its creditors—us included. That conduct exposes you to personal liability.”
Then comes the pivot: “Because of how this was handled, we are prepared to pursue you individually. Improper, or potentially fraudulent, distribution of sale proceeds creates grounds to pierce the corporate veil. At this point, we can either resolve this matter through settlement, or we will proceed to court or arbitration and seek not only the amounts owed under the agreement, but attorneys’ fees as well.”
That conversation changes everything. Suddenly, the SMB owner who believed the asset sale eliminated the obligation to pay is confronted with a far different reality: personal exposure, litigation risk, and the possibility of paying far more than the original contract balance.
That’s leverage—and when applied correctly, it works.
What Leverage Do You Have with the Buyer?
Now let’s turn to the buyer—the company that acquired your customer’s assets. If the buyer received licenses that were originally purchased through your MSP or is using your services to support the acquired assets, you may have a strong claim based on an implied assumption of contract. A buyer cannot simply “put its head in the sand” and later claim ignorance as a defense.
If you remain contractually responsible for transferred licenses, or if the buyer is relying on your services to keep the acquired operations running, you can argue that the buyer has, in effect, assumed your agreement. In practical terms, your position is that this was not merely an asset purchase, but a de facto merger: The buyer acquired the business itself, and with it, the contracts necessary to operate that business.
But what if the buyer is not using your services and wants nothing to do with you? In that case, your remedies against the buyer may be limited. You may be able to recover amounts owed for licenses that were transferred and for which you remain financially responsible, but little more. As frustrating as that may be, a buyer is generally permitted to acquire assets without assuming liabilities. If the buyer is not using or relying on your services, you likely have no viable claim against it, which underscores why strong claims against the seller—and solid managed service agreements—remain critical.
The Hard Truth: Risk vs. Reward
Pursuing these cases takes time and money. Even when you have a strong legal position, collections can be difficult, and depending on the amount at stake, may not be worth the effort. This is always a risk-reward analysis. You must weigh what you are owed against the cost, time, and uncertainty of enforcement, and decide whether to pursue the seller, the buyer, or both—or to walk away.
A legally sound claim is of little comfort if it results in an uncollectible judgment or one that takes years to enforce. That decision is never easy, and it should be made carefully and with experienced counsel.
So how can you best position yourself to mitigate the risk of this happening to you?
Refer back to the article I wrote for MSP Success last month, in which I shared the single most effective strategy I know for avoiding the asset-sale trap: Bill the way law firms bill.
Collect hard costs up front and apply those funds monthly. By doing so, you ensure that your expenses are covered even if a customer sells its assets and attempts to walk away from your agreement. If a customer pushes back, explain that advance payments or retainer-style billing ensure timely payment, reduce the need for collections, and allow your company to leverage volume discounts, all of which ultimately benefit the customer.
Always protect your business from a surprise asset sale and remember, you have options.
