asset acquisitions - Jackson Walker LLP

3018518v1• The third factor is also quite common; if a corporation sells all or substantially all ofits assets, it will have no reason for being thereafter and will undertake to dissolve itscorporate existence within a reasonable period of time after the closing.Massachusetts law provides that even after dissolution a corporation continues “abody corporate” for three years after the dissolution for the purpose of prosecutingand defending lawsuits and settling its affairs - but not for the purpose of carrying onbusiness. M.G.L.c. 156B, § 102. Moreover the corporation may be revived longafter dissolution by the Secretary of State under certain conditions. M.G.L.c. 156B,§ 108. The point is that the dissolution of a corporation which has sold all of itsoperating business assets is not only not unusual but what one would expect in suchcircumstances.• It is also customary, especially in the acquisition of an entire business operation, forthe purchaser to assume certain ongoing obligations of the business being acquired.Existing contracts, particularly if on favorable terms to the acquired business, willoften be assumed by the purchaser. The real concern the purchaser has with respectto existing liabilities is knowing the full extent of those liabilities and providing in theacquisition agreement that the purchaser is assuming only the liabilities set forth inthat agreement, with any others, known or unknown, to remain with the selling entity.The factor which is probably not as commonplace as the three above noted is thecontinuity of stock ownership element listed by the Court as the second of the de facto mergerelements. That is not to say that it is at all unusual for former owners of an entity to have anownership stake in the successor. Indeed, in any acquisition in which a financial buyer isinvolved, if the new owner wants to retain existing management, they often will be offered anequity stake in the acquiring enterprise. If such management people have also had an equityposition in the selling corporation, this factor would be satisfied. Indeed, a 12½% stake in thenew enterprise was all the SJC needed in the Cargill case to check off this factor.One wonders whether the SJC would have reached a different result in this case if thesole owner of Beaver had not acquired any equity interest in Citizens. On the one hand, theCourt states, after the recitation of the four factors: “No single factor is necessary or sufficient toestablish a de facto merger.” Id. at 360. On the other hand, in a footnote the Court mentions aMichigan case which found successor liability with no continuity of equity ownership,essentially relying on the other three factors of the de facto merger test.Where no stock is exchanged, corporate successor liability has more frequently beenimposed on a theory of “continuity of enterprise.” See, e.g., Turner v. Bituminous Cas.Co., 397 Mich. 406, 411 (1976). There is no claim here by Northeast that we shouldapply that theory of liability and we do not do so. Id. at 361 n.8.If the Court were presented with a case in which there is no continuity of ownership, it would notbe very big step from the Cargill facts for the Court to find successor liability.The Court concludes its discussion of the de facto merger doctrine with the followingobservations:Appendix A - Page 5