f) buyer`s actual or imputed knowledge of claims related to Buyer`s failure to require Seller to make reasonable arrangements for their satisfaction by insurance or trust. A seller`s creditors are not parties to and are not bound by the asset purchase agreement. (Sales governed by bankruptcy court orders under 11 U.S.S.C. 363 and other court sales may be an exception to this rule.) The purchase contract alone cannot fully protect the buyer. The purchase contract transfers responsibility for the seller`s obligations to the parties. A right to compensation may be of little value if assets are purchased by a distressed or insolvent seller. Creditors will appeal wherever they can make a colorable claim, and the courts have been open to some very new theories of recovery. If a seller is distressed or insolvent, this risk must be identified and quantified. The selling price should reflect both the cost of defending these claims and the possibility of their success. In many cases, insisting on a sale using receivership, bankruptcy, or other legal means to obtain protection from a court order may be the only prudent option for acquiring assets from certain businesses. The outcome of a case in which responsibility for succession is sought may be determined by the law of the applicable State and the court examining the case.
The law applicable to the purchase contract may not be relevant because the injured party or the aggrieved party is not a party to the purchase contract in an estate liability case. If they arise in the context of product liability claims, the principles of choice of tort of applicable law generally require the application of the law of the place of infringement and not of the place where the product was manufactured or where the seller or buyer can do business. The factors taken into account and their relative weight in inheritance liability cases differ from one State to another. The purchase contract must clearly define the responsibilities contained and excluded in the transaction, as well as the seller`s obligation to compensate the buyer for the obligations retained and not assumed. Acquisition subsidiaries are useful for intercepting inheritance liability claims at the subsidiary level and protecting the buyer`s core business. Cash transactions reduce the risk of liability for “continuity of ownership” reasons and also create liquidity to satisfy the seller`s current and future creditors. While the risk of unknown liabilities is lower when acquiring assets than when acquiring assets than when dealing with stock markets or transactions, the strongest defense is robust, organized attention. Whether potentially large liabilities can be imposed on a buyer long after the transaction closes (e.g. B, product liability and environmental remediation costs), an appropriate pre-closure investigation can identify and quantify risks. Once identified, risks can be assigned and mitigated through measures such as indemnification of liabilities that are revealed immediately after closing and insurance coverage for other claims.
The court concluded that neither provision constituted an effective assignment of the seller`s rights under the relevant insurance policies. The court pointed out that these articles of the asset purchase agreement did not mention liability insurance rights, but demonstrated a promise to transfer to the buyer all proceeds of outstanding claims to cover the assets acquired. The court held that if an alleged assignment does not explicitly identify an insurance policy and does not mention liability coverage at all, the subject matter of the assignment is not described with sufficient precision to be a valid assignment of all the assignor`s rights of all of its prior liability insurance policies. For example, Texas has eliminated estate liability for seller responsibilities that are not assumed in purchase contracts. Delaware courts use the doctrine of de facto merger sparingly and only in very limited contexts. But in Indiana, after a state official`s health club closed, the state passed a law requiring all future health club operators at a specific address to honor memberships sold by previous tenants. Medicare reimbursement rules and unemployment insurance subscription rules can also make a buyer suffer for the sins of his seller. The court concluded that there was no valid allocation of all insurance policies in the securities purchase agreement, but only the possible allocation of only the policies listed in a particular schedule. The case was remanded to allow the buyer to amend its complaint to deal only with the planned insurance policies. (c) the seller`s owners who receive interest in the buyer (expressly or in contracts of advice or employment, the terms of which imitate ownership); Perhaps the strongest protection for the buyer is to have a viable post-transaction seller who responds to both post-closing claims made by the buyer and satisfies claims from other creditors (including government agencies) who may demand payments from a “successor.” To the extent possible, buyers should require sellers to remain in place until the expiry of the applicable limitation periods and to maintain insurance coverage for current and preliminary liabilities.
When dealing with solvent sellers, buyers should need sufficient reserves for pre-closing claims and contingent liabilities, including reserves to cover deductible amounts and self-insured deductibles. Unfortunately, sellers who are able to meet these requirements are the least likely to pose inheritance liability issues to their buyers, and the best value for assets often comes from desperate sellers. The asset purchase agreement in the section describing the acquired assets provided that the buyer would acquire, among other things, all rights, titles and shares of the seller in “all proceeds payable under an insurance policy covering the assets acquired as a result of all events occurring prior to the balance sheet date.” In the “Insurance” section, the contract provided that any rights that the seller might have vis-à-vis its insurers in respect of the assets acquired would be transferred to the buyer at the time of conclusion. In The Premcor Refining Group Inc.c. ACE Insurance Company of Illinois, No. 5-18-0210, 2019 Fig. App. Unpublished.
LEXIS 1539 (August 12, 2019), the purchaser of a refinery attempted to obtain from a Chapter 11 debtor the benefits of all insurance policies issued to the seller and its predecessors by various insurance companies to cover various environmental contamination lawsuits and proceedings. The refinery was sold under an asset purchase agreement. The issue before the court was whether there was a valid assignment of all insurance policies from the seller to the buyer. Advising buyers on estate liability risks is a challenge for transaction lawyers. Case law has little predictive value for the following reasons: (a) many factors are used to determine inheritance liability; (b) the list of factors that may give rise to liability has grown steadily (and can never be determined); (c) unknown tort actions such as product liability can be heard in remote jurisdictions and raise a complicated choice of law, and (d) courts and appellate courts have adopted new theories to assist plaintiffs who are unable to recover from insolvent sellers….