Blog

Asset Purchase And Assumption Of Liabilities Agreement

Courts have always held that transactions made to avoid liability should not be used by the parties to evade their legal liability. This means that business buyers and sellers are not allowed to structure an agreement solely to avoid debt. To prove fraud, a creditor must prove fraudulent intent. One of the common attributes of fraud is a lack of proper consideration, i.e. the purchase price is abnormally low. Most of the companies that are sold in the Texas I practice areas (I represent buyers and sellers of companies as their lawyer) are structured as asset sales. I am talking about main street businesses (revenues less than $2 million) and lower-middle-class stores (less than $10 million). Although this is not common for small businesses, I see more often mergers with mergers involving large companies, including state-owned enterprises. Most of the legal proceedings that have broadened the scope of estate liability have occurred in specific contexts, in which it seemed simply unfair for the owners of a selling company to profit from the sale of assets and move away from certain liabilities.

The courts would not work too much on certain debts of the seller if they were not paid. However, with respect to product violations, environmental commitments and pension fund deficits, the courts have become creative and have considered ways to ensure that someone is on the hook somewhere to deal with this type of debt. However, as in most areas of the act, there are exceptions to the general rule that asset purchase transactions can be used to avoid debt recovery. There are certain circumstances in which a buyer is liable for certain debts of the selling company, while he has structured the transaction as an asset purchase and has expressly excluded those debts from the transaction. This legal area is called «inheritance liability» since the buyer, as the seller`s successor, is legally liable for certain obligations of the seller with respect to the acquired assets. It is also sometimes referred to as «transfer responsibility.» Another theory of succession liability is called «implicit assumption.» Implicit assumptions arise primarily from sloppy contract projects or alleged ambiguity in the asset purchase agreement. By this approach, a court may decide that a buyer has implicitly assumed certain pre-closing commitments to a sale transaction by agreeing to assume all of his debts in the asset sale contract, even if the liabilities were not foreseen by the parties at the time of the sale. Until the 1970s, the responsibility to succeed the players of M-A was not a major concern.

The courts have almost always complied with the debt allocation in the asset purchase agreement. But since then, the courts have developed several new theories of estate liability in order to make a buyer liable for the debts and obligations of the sellers. Some courts have introduced a requirement imposed on a buyer of a company`s assets to warn customers of the defects in the seller`s products. This is somewhat different from the product line exception described above. In general, this teaching has two pencils. On the one hand, the buyer must be aware of the defects of the seller`s products and, on the other hand, there must be a permanent relationship between the buyer and the customers of the sale. B, for example, a mandatory duty of service to maintain products manufactured or sold by the seller. Buyers often buy the seller`s value.

In some cases, the purchase of good public may be considered to involve an obligation to assume responsibility for un anticipated claims of liability as a result of the products that were created prior to the conclusion of the transaction. Of course, if the buyer is blocked, if he settles the seller`s debts, if this is not part of the deal, it is likely that it will be repaid by the seller under the terms of the contract to purchase property. But if the seller`s creditors are not

Comments are closed, but trackbacks and pingbacks are open.