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Possible Successor Liability in a Michigan Asset Purchase Transaction

One of the advantages of acquiring a business through an asset purchase is that the assets are transferred to the purchaser free and clear except for enforceable liens and security interests. However, there is a doctrine that anyone contemplating an asset purchase should be aware of. It’s called “successor liability”.

Successor liability is an “equitable” doctrine that a court can apply when a strict application of the law would result in an injustice under the circumstances of a particular case. When a court imposes successor liability, a plaintiff with a claim against the seller of the assets will be allowed to assert that claim against the purchaser.

Successor liability can be imposed in a number of circumstances, including:

  1. When the purchaser intentionally assumes the seller’s liabilities.
  2. If the asset sale is a fraudulent scheme for the seller to escape liabilities.
  3. If the asset sale is a de facto merger of the seller and purchaser.
  4. When the purchaser merely continues the business of the seller.

It is important for any Michigan business that is considering purchasing assets of another business to engage a competent Michigan business lawyer to thoroughly analyze the transaction so that it can be structured to avoid (to the extent possible) successor liability for the obligations of the seller.

Please feel free to contact Michigan mergers and acquisitions attorney Michael J. Hamblin for more information on how he can help you with your legal needs.

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