However, courts have carved out exceptions to the general rule against Successor Liability in a few specific contexts over the years. Buyers may be held liable for the seller’s liabilities in certain circumstances if a court determines that the facts and circumstances support one of the following judicially created exceptions:
- the buyer expressly or implicitly accepts the liabilities
- the transaction is a merger or consolidation of buyer and seller under state law (also known as a de facto merger);
- the buyer is merely a continuation of the seller (later expanded by some courts to include the less stringent standard of a continuation of the seller’s enterprise); or
- the transfer was fraudulent or made with the intent of defrauding creditors.
In addition to the traditional common law exceptions to the general rule of non-liability outlined above, courts have imposed liability in the following circumstances:
- the buyer continues the seller’s product line; and
- the nature of the specific obligation arising from a statute is such that a finding of Successor Liability is required by public policy.
The scope of the exceptions has grown dramatically over the years, to the point where it is impossible to predict the outcome of a Successor Liability claim with certainty. Marcadis Singer PA represents the interests of the creditor in Successor Liability suits as a result of the purchase of another business. Depending solely on the transaction structure will not protect the buyer; for instance, a provision in the asset purchase agreement stating that the buyer is not assuming any liabilities other than those expressly identified may not protect the buyer from a Successor Liability claim. This may not be adequate protection because the claimant most likely to pursue a Successor Liability suit and is not a party to the purchase agreement. Courts have applied the exceptions in a variety of ways, and the cases are heavily fact-driven. Most court cases imposing Successor Liability arose when it appeared unfair that the seller could walk away from certain liabilities, leaving claimants with no recourse.
Applicable state law is essential as some courts are hesitant to hold a buyer liable for a seller’s liabilities not expressly assumed in the transaction. For example, the Delaware Court of Chancery has stated that, while the general rule of non-liability is not absolute, “[a] successor corporation is liable only for liabilities it expressly assumes, absent unusual circumstances.” In addition, in some states, such as Minnesota and Texas, state lawmakers have taken action to give buyers greater certainty that they will not be held liable for liabilities they did not agree to assume.
This article is not to be considered legal advice; it is purely informational. Every case is different. Do not rely on this article for professional advice.
If you believe you have a claim for Successor Liability related to M&A or purchase of a business, contact a Creditors Rights Attorney as soon as possible. Marcadis Singer, PA, are Creditors Rights Attorneys practicing in Florida.