When buying securities, a buyer can selectively choose which assets are part of the business and which are not. This can manifest itself in the agreement in two ways – the agreement can only list the assets that the buyer will buy, or an agreement can stipulate that the buyer buys all the assets of the company, with the exception of certain listed assets. First, the buyer has certainty about the assets acquired and, apart from unforeseen complications, certainty about the liabilities associated with them. On the other hand, the buyer does not have the right to purchase an asset that is not listed in the APA, so it is up to the buyer to ensure that the list of assets is a complete list of assets necessary or useful for the execution of the business to be purchased. In the second case, the broader wording allows the buyer to take any asset from the seller that is not explicitly excluded, eliminating the risk that a significant asset on the list of purchased assets has been overlooked, but it can also expose the buyer to unexpected liabilities associated with that neglected asset. Negotiations between the parties regarding the assets acquired and the assets excluded in the APP are likely to be influenced by the relative risk associated with the sector in which the seller operates, the extent to which the buyer can understand the assets and liabilities through the due diligence process and other wording of the APP itself. such as.B. the extent of the Seller`s obligation to indemnify the Buyer upon completion. The scope of exemptions has expanded considerably over the years, to the point that it is no longer possible to predict with certainty the outcome of an action for civil liability for inheritance.

Relying solely on the structure of the transaction will not necessarily protect the buyer. Similarly, the provisions of the contract for the purchase of assets that stipulate that the buyer assumes no liability other than those expressly stated and chooses the law of the State governing the contract may not protect the buyer from a claim for inheritance liability because the plaintiff is not a party to the agreement. The courts have taken different approaches to applying the exceptions, and the cases are very fact-based. Most of the legal proceedings in which liability is imposed have occurred in situations where it seemed unfair that the seller was allowed to deviate from certain liabilities, leaving claimants without recourse. Buyers and sellers of businesses should not structure a transaction solely to avoid liability. If a transaction is structured with the real intention of defrauding creditors, or if the amount paid in the transaction is less than the “fair consideration”, the law provides for a remedy and subjects the buyer to liability. This exception is particularly relevant in the context of a non-performing transaction, where compressed schedules and improved leverage can allow a buyer to negotiate a much cheaper purchase price than a non-troubled transaction. What is the “Assumed and Excluded Liabilities” section? The provisions relating to assumed and excluded liabilities together describe the seller`s liabilities that are transferred to the buyer and those that remain the property of the seller. Business buyers will often try to structure the transaction as an asset sale transaction to avoid inheriting liabilities as part of the purchase. The general rule is that a buyer of assets is not liable for a seller`s liabilities solely because of the ownership of the assets.

In fact, 130 years ago, the Supreme Court said that this general rule of compensation was so well regulated “that it is surprising that another one could exist.” [1] For the disclaimer to apply and impose liability on a successor, a court must determine that the buyer has assumed the obligation. If an agreement clearly and explicitly denies liability, liability based on the exception usually does not occur. A buyer may agree to assume certain responsibilities (for example. B liabilities accumulated as current liabilities related to a working capital adjustment) or require the seller to take out insurance for certain potential liabilities without affecting a defence that it has not assumed a specific obligation. Clear wording in the purchase contract is of paramount importance – if the agreement is ambiguous, a buyer may have assumed the seller`s responsibilities, even if those liabilities were not foreseeable at the time of sale. Moreover, notwithstanding the clear wording of the agreement, the courts may simply conclude that, although the parties to the asset purchase agreement divided the liabilities and contained an express provision refusing acceptance, such a division is not determinative for the owners of third-party claims. In addition to product liability cases, a buyer in an asset transaction may be held liable for the seller`s liabilities under federal and state laws, regardless of any of the typical exceptions. These liabilities include those related to unpaid taxes on sales, use and wages and violations of labour rights, as well as certain environmental and uncovered pension obligations. In fact, in recent decades, courts have expanded the theory of inheritance liability to impose a buyer`s liability for the seller`s violations of certain laws and obligations under certain laws. The seller in an asset sale has the same or similar concerns about which assets to exclude from the sale that the buyer has with respect to the purchased assets. As with the wording of acquired assets, the wording of excluded assets may be adjusted to exclude only certain listed assets, or it may be broad enough for the seller to exclude all of the seller`s assets, except those expressly defined as purchased assets.

Again, the seller should be concerned with holding certain assets and reducing certain liabilities, and these concerns should dictate the seller`s position in terms of wording in the APP. However, over the years, courts have identified a number of exceptions to the general rule against inheritance liability in certain particular contexts. Buyers may be held liable for the seller`s liabilities in certain circumstances if a court finds that the facts and circumstances support one of the following exceptions created by the court: Differences in the structure of a share sale transaction: In a share sale, the responsibilities of the target company automatically pass to the buyer. Therefore, the agreement does not include the “Assumed and Excluded Liability” sections, and most of the risk allocation is achieved through Seller`s representations, warranties and indemnities provisions. Seller`s preference: In general, the seller wants the “Responsibilities Assumed” section to be a non-exhaustive list that includes all liabilities that are not expressly excluded in the “Excluded Liabilities” clause. It also explicitly wishes to transfer any liabilities that are not paid at the balance sheet date, any liabilities related to assigned contracts, and any other liabilities that arise after closing (e.g.B. compensation and benefits, taxes, etc.). A court may find that the acquisition of assets is a merger in all respects, which, as with any other merger, concludes that all of the seller`s liabilities become the buyer`s liabilities, regardless of the express wording of the asset purchase agreement. When making a decision, courts generally take into account factors such as the buyer`s continuation of the seller`s business activities, the continuity of directors, officers, other staff, the location and assumption of these responsibilities, which are normally necessary for the uninterrupted continuation of normal business activities.

In addition, and to a large extent, some continuity of shareholders or other owners is often necessary to impose liability. Often, the selling company ceases operations or dissolves. The question often asked is, “Is it essentially the same people who are doing the same thing, in the same place, with the same assets and with the former owners involved in owning the new business?” The buyer`s use of the same business name, phone number, domain name, trademarks, and seller can also increase the likelihood of liability. On the other hand, of course, a seller wants the buyer to take on as much responsibility as possible, so broader statements about the responsibilities assumed usually favor the seller. .