Legal Successor Company

In addition to the four traditional exceptions to the defence of estate liability in the acquisition of assets, there are three other exceptions that apply in narrower circumstances and jurisdictions. We`ll cover these exceptions in another blog post. As a general rule, a company that acquires only the assets of another company is not liable for the debts and liabilities of its predecessor. However, liability for succession would be linked to the successor company in four specific circumstances: (1) express or implied assumption of liability; (2) the transaction amounts to a consolidation or amalgamation; (3) the partnership or joint-stock company succeeding it is merely a continuation of the previous partnership; or (4) the transaction is made fraudulently to avoid liability for debt. With a successor company, you don`t have to start from scratch. You have assets from the previous company that you can work with. You can also keep your employees from the old company. This saves money that you would otherwise have spent hiring new employees or acquiring equipment and inventory. Instead, you can channel company resources into marketing or innovation to create a wider customer base. There are four traditional exceptions to the defence of estate liability when acquiring widely recognized assets. As generally stated, these exceptions are that the buyer does not assume the seller`s responsibilities unless (1) there is an express or implied acceptance agreement, (2) the transaction amounts to a consolidation or merger of the two companies, (3) the acquiring company is a mere continuation of the seller, or (4) the transfer of assets to the buyer is for fraudulent purposes, avoid liability for the seller`s debts. The „mere continuance” exception for estate liability is intended to prevent a corporation from acquiring the assets of another corporation simply to ensure that the assets remain beyond the reach of creditors of the predecessor.

A successor would be liable for the debts of his predecessor if the two companies are essentially identical, with a change in form, but not with a change in content. Several factors would be considered in determining succession liability, including (1) joint officers, directors and shareholders; (2) if, after the conclusion of the sale of the assets, there is only one company; (3) the adequacy of the consideration (i.e., something of value such as money) in relation to the assets to be sold; (4) the transfer of key employees from one predecessor to another; and (5) the purpose and effect of the sale of assets. You can also get into trouble if a judge believes your business has implicitly assumed liabilities or debts. For example, if your old business made payments to a creditor and your new business took over those payments, a judge will likely find that your current business has a responsibility to pay off the debts of your old business. If a party has a cause of action, it can be frustrating to discover that the business against which the party has a claim no longer exists. In some circumstances, it is difficult to recover liability against a defunct corporation, but if the corporation continues to operate in a modified form as a result of a merger, acquisition or other circumstances, a cause of action against the operating company may be upheld. Nevertheless, there are certain things that parties should keep in mind when suing a successor company. Entrepreneurs create business ideas that can be turned into a small business.

Sometimes the business will not succeed due to factors that may include funding or marketing. In these situations, successor companies may emerge from the previous company after liquidation. They are also called „Phoenix” societies because they rise from the ashes of the previous society. The „fraudulent transfer” exception to inheritance liability protects the rights of a corporation`s creditors against a transfer made with intent to defraud or without fair consideration. An important element to be considered a fraudulent transfer is when the previous debtor is already insolvent or becomes insolvent as a result of the transfer or transfer. It should be noted that litigation against a successor company is not only possible in the event of a merger or acquisition. Rather, there are situations where a successor corporation that has purchased a significant portion of the assets of another corporation could be liable for the liabilities of the other corporation, such that it is „in place” of another company`s claims. First, if the entity agrees to assume the liabilities of another entity in connection with the asset acquisition transaction, claims may be asserted against the successor company.

If the courts consider that the asset acquisition contract legally amounts to a merger or consolidation of the two companies, liability for the succession may be transferred to the acquiring company. If the purchasing company is considered to be the mere successor of the seller, the purchasing company may be liable for the seller`s responsibilities. Even if a court finds that the purchase of assets has been structured in such a way that it is beyond its liability, it can still hold the buying company liable as the successor to the selling company. There are many nuances in these situations, so it`s important to do your research and consult with an experienced lawyer who can determine if a claim can be made against a company buying assets. Problems can arise when a successor company continues to operate after the liquidation of a bankrupt company. The company`s products or services may have a bad public image that will hurt future sales. Keeping management could lead to making the same mistakes that caused the previous company to collapse. It can also be harder to get financing after lenders have seen the first venture fail. In many cases, a successor company is formed to avoid private liabilities as well as tax obligations; Lawsuits often occur after the parties have completed the transfer of title and ownership.

The law often states that if a new company carries on the same business with the same assets and in the same place, it can be held liable for the obligations of its predecessor, even if the successor is not held liable because of the conditions of the transfer. Non-payment of goodwill strengthens the claim of all creditors who come forward. A successor company takes over the business (products and services) of the previous companies in order to maintain business continuity. For this purpose, the employee, board of directors, location, equipment and even the name of the product may remain the same or change only slightly at the time of succession. [1] If a company wishes to acquire another company, there are different legal forms that the acquisition can take. Two of the common methods of acquisition are asset acquisition and merger. In an asset acquisition, an acquirer acquires the assets of the target company and the target company may continue its separate legal existence, whereas in a merger, the target company usually merges with the acquiring company and disappears into it. While a buyer must consider a number of issues when deciding on the form of an acquisition, an important consideration is estate liability. The first exception to the estate liability defence is that a successor company may expressly agree to assume liability to the target company in the event of an acquisition of assets.

In these cases, the successor company is liable as part of its consent. With the exception of „consolidation or merger”, liability is transferred to the buyer when the buyer pays for the assets of the target company with its shares. In these situations, the owners of the selling company become owners of the buying company when the transaction is completed. In the fraud exception, courts reserve the discretion to go beyond the formal structure of a transaction to determine whether the true purpose of the transaction was simply to avoid liability and was not to sell in good faith assets of the corporation for legitimate business purposes. Insolvency is a situation in which it is more difficult to bring an action against a successor company than in other circumstances. Typically, when companies emerge from bankruptcy, they receive bankruptcy debt relief, making it difficult, if not impossible, to collect debts that were correctly listed in bankruptcy documents. Therefore, if the parties are unsuccessful in the insolvency proceedings, they may find it difficult to recover their right against that company. In addition, if a company or its assets are sold during bankruptcy, it can be difficult to sue successor companies.