asset acquisitions - Jackson Walker LLP

There have been some recognized exceptions to the buyer’s ability to avoid seller’s liabilitiesby the terms of a contract between the seller and the buyer:• Bulk sales laws have permitted creditors of the seller to follow the assets into thehands of the buyer if the bulk sales law procedures are not complied with. Adiscussion of bulk sales laws appears in the comment to Section 5.10 under SelectedAsset Acquisition Agreement Provisions below.• Fraud - if the deal is really a sham and not a bona fide arm-length transaction, or ifseller is insolvent and inadequate consideration is paid by the buyer, under thefraudulent transfer statutes described in the comment to Section 3.32 under SelectedAsset Acquisition Agreement Provisions below.• Implied Assumption - really a matter of sloppy drafting coupled with some thirdpartybeneficiary arguments which leave the buyer with an unexpected problem.• Tax liens - some state tax statutes provide that taxing authorities can follow the assetsto recover taxes owed by the selling company; generally a waiver from the state orother accommodation can resolve. See Section 10.2 and related commentary underSelected Asset Acquisition Agreement Provisions below.None of these exceptions prevents a buyer from limiting the liabilities to be assumed from aselling company. By compliance with a statutory scheme (e.g. the bulk sales laws, state tax lienwaiver procedure, etc.) or by careful drafting (implied assumptions, representations and structuresthat negate the elements of a fraudulent transfer), a buyer could structure an asset purchasetransaction to protect the buyer against liabilities of the seller that the buyer does not intend toassume under the terms of the asset purchase agreement.B. Successor Liability DoctrinesDuring the past two decades, the buyer’s level of comfort has dropped somewhat. Duringthat period, courts have developed some theories which require buyers to be responsible for sellerpreclosing liabilities in the face of express contractual language in the asset purchase agreement tothe contrary. In addition, since the early 1980’s federal and state statutes have imposed strictliability for certain environmental problems on parties not necessarily responsible for causing thoseproblems. These developments, particularly in the areas of product liability, labor and employmentobligations and environmental liability, have created problems for parties in asset purchasetransactions. The remainder of this section will briefly describe the principal theories of successorliability and will address some of the techniques which asset purchase lawyers have used to dealwith those problems.1. De Facto MergerInitially, the de facto merger theory was based upon the notion that, while a transaction hadbeen structured as an asset purchase, the result looked very much like a merger. The criticalelements of a de facto merger were that the selling corporation had dissolved right away and that theshareholders of the seller had received stock in the buyer. These two facts made the result look very3148166v1- 11 -