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C. Governmental Authorizations
Transfer of licenses, permits or other authorizations granted to a seller by governmental or
quasi-governmental entities may be required. In some cases, an application for a transfer or, if the
authorization is not transferable, for a new authorization, may involve hearings or other
administrative delays in addition to the risk of losing the authorization. Many businesses may have
been “grandfathered” under regulatory schemes, and are thereby exempted from any need to make
costly improvements to their properties; the buyer may lose the “grandfather” benefits and be subject
to additional compliance costs.
D. Assumed Liabilities
An important reason for structuring an acquisition as an asset transaction is the desire on the
part of a buyer to limit its responsibility for liabilities of the seller, particularly unknown or
contingent liabilities.
Unlike a stock purchase or statutory combination, where the acquired corporation retains all
of its liabilities and obligations, known and unknown, the buyer in an asset purchase has an
opportunity to determine which liabilities of the seller it will contractually assume. Accordingly,
one of the most important issues to be resolved is what liabilities incurred by the seller prior to the
closing are to be assumed by the buyer. It is rare in an asset purchase for the buyer not to assume
some of the seller’s liabilities relating to the business, as for example the seller’s obligations under
contracts for the performance of services or the manufacture and delivery of goods after the closing.
Most of the seller’s liabilities will be set forth in the representations and warranties of the seller in
the acquisition agreement and in the seller’s disclosure letter or schedules, reflected in the seller’s
financial statements or otherwise disclosed by the seller in the course of the negotiations and due
diligence. For these known liabilities, the issue as to which will be assumed by the buyer and which
will stay with the seller is reflected in the express terms of the acquisition agreement.
For unknown liabilities or liabilities that are imposed on the buyer as a matter of law, the
solution is not so easy and lawyers spend significant time and effort dealing with the allocation of
responsibility and risk in respect of such liabilities. Many acquisition agreements provide that none
of the liabilities of the seller, other than those specifically identified, are being assumed by the buyer
and then give examples of the types of liabilities not being assumed (e.g. tax, products and
environmental liabilities). There are, however, some recognized exceptions to a buyer’s ability to
avoid the seller’s liabilities by the terms of the acquisition agreement, including the following:
• Bulk sales laws permit creditors of a seller to follow the assets of certain types of
sellers into the hands of a buyer unless specified procedures are followed.
• Under fraudulent conveyance or transfer statutes, the assets acquired by the buyer
can be reached by creditors of the seller under certain circumstances. Actual fraud is
not required and a statute may apply merely where the purchase price is not deemed
fair consideration for the transfer of assets and the seller is, or is rendered, insolvent.
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