The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting a live 90-minute webinar with interactive Q&A Avoiding Corporate Successor Liability in Asset Sales Mitigating Risk Through Due Diligence, Contractual Provisions, Reps and Warranties Insurance, and More Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, NOVEMBER 19, 2015 H. Joseph Acosta, Partner, FisherBroyles, Dallas Joe Sandbank, Law Office of Joe Sandbank, Rocklin, Calif.
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The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
Avoiding Corporate Successor
Liability in Asset Sales Mitigating Risk Through Due Diligence, Contractual Provisions,
Uniform agreement amongst Circuits that successor liability
applies to Title VII
11th Circuit (2005)– must have privity between successor and
predecessor (e.g., sale or merger) before apply MacMillan.
6th Circuit disagrees (case-by-case).
7th Circuit (2013) –holds federal standard applies whenever
violation of federal statute on labor relations or employment
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Pension Liability
Artistic Furniture (1990) – extends Golden State to
delinquent contributions under pension fund
Einhorn (2011) – delinquent contributions in multi-
employer pension plans (upholds federal interests
in ERISA)
ERISA unique – congressional intent to develop
federal common law
Question 1– withdrawal penalties in multi-
employer plans?
Question 2 – what happens with competing federal
interests? 17
Fraud on Creditors
Fraud taints any transaction
UFTA, adopted by most states, allows
avoidance for actual (intent) or constructive
fraud; plus money judgment for value of
assets or claim (whichever is less)
Successor liability (fraud) utilizes badges of
fraud used in UFTA cases, but does not
cap liability
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Bulk Sales
Certain States adopt bulk sale laws (Article 6 of
UCC) – places burden on buyer
○ Threshold amount/certain businesses
○ Buyer provides notice to creditors of sale
○ Creditors submit claims in writing by deadline
○ Buyer or escrow agent withholds sufficient purchase
price to pay claims
○ Seller can dispute claims – reserves
○ Distribution priority scheme
○ Immunity to buyer who complies
Not Exclusive Remedy
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Tax Liabilities
In some states, certain tax liabilities of seller may be enforced against a buyer.
E.G., In California, unpaid Sales and Use Tax, taxes payable to the California Employment Development Department, and taxes required to be withheld by the California Franchise Tax Board may all be imposed on a buyer of business assets.
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Mitigation Techniques
Due Diligence
Review financial records to discover liabilities that are or should be “on the books.”
Consider Environmental Site Assessment (ESA). Phase I ESA involves review of records, site inspection, and
interviews with owners, occupants, neighbors and local government officials to determine if there is a history of the use or disposal of hazardous materials.
Phase II ESA includes sampling and laboratory testing of soil and groundwater.
Review business’s compliance with labor laws and pension obligations.
Review history of claims related to product liability and evaluate risk and options for mitigation.
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Mitigation Techniques
Contract Drafting Expressly indicate liabilities not being
assumed – avoid implied assumption of liabilities.
Structure deal to avoid “substantial continuity” rule – where applicable E.g., seller entity retains certain assets/doesn’t
immediately dissolve, changes to management team and workforce, representations of intent to change products/services, etc.
Indemnity (require that seller indemnify buyer from any pre-closing liabilities). Indemnity most easily enforced via offset of seller
carry note (make part of consideration seller-carry financing).
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Mitigation Techniques
Insurance
Representation and Warranty Insurance can provide coverage where seller’s representations are inaccurate. Typical representations are that financial records provided
to the buyer are accurate, no hazardous waste has been disposed of on property, no legal claims are pending, seller is operating in compliance with all laws, etc.
Require Seller to add Buyer as loss payee to existing product liability insurance and maintain coverage after closing; obtain new coverage that covers claims arising from sales of products prior to closing.
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Mitigation Techniques
Avoiding Tax Liabilities
Where applicable, obtain release from
the tax authority to certify that taxes
have been paid through closing date.
Buyer can withhold a sufficient portion of
the purchase price at closing to cover
the seller’s estimated tax liability that is
subject to successor liability.
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Mitigation Techniques
Bulk Sale Transfer Compliance
In states with Bulk Sale Transfer laws, buyer gains
immunity from seller’s trade creditor claims by
complying procedures for giving notice to creditors
and providing opportunity to make claims against
the purchase price consideration.
Utilize business escrow service or attorney to
comply with complex bulk sale procedures.
Must comply with other successor liability statutes
relating to similar bulk sales to avoid liability.