The general rule, in Pennsylvania, is that where one company sells or transfers all of its assets to another, the latter is not responsible for the debts and liabilities of the transferor. Fiber-Lite Corp. v. Molded Acoustical Products, 186 B.R. 603, 607-08 (E.D. Pa. 1994). Pennsylvania does recognize exceptions. Successor liability will be imposed in Pennsylvania where:
(1) the purchaser expressly or implicitly agrees to assume the obligations, 186 B.R. at 608;
(2) the transaction amounts to a consolidation or merger, id;
(3) the purchasing corporation is merely a continuation of the selling corporation, id;
(4) the transaction was fraudulently entered into to escape liability, id;
(5) the transaction was not for reasonably equivalent value in exchange, Dawejko v. Jorgensen Steel Co., 434 A.2d 106, 107 (Pa. Super. 1981); and
(6) the case involves a products liability claim arising out of a product line continued
by the purchaser, id at 110-12.
The continuity exception (Item 3) has been held to be subsumed by the de facto merger
exception. Fiber-Lite, 186 B.R. at 608.
A de facto merger (Item 2) requires:
(i) a continuity of management, personnel, physical location, assets and general business operations;
(ii) a continuity of shareholders which results from the purchasing corporation's paying for the acquired assets with shares of its own stock (so that the shareholders of the selling corporation become shareholders of the purchaser);
(iii) the seller ceases operations and liquidates; and
(iv) the purchaser assumes those obligations of the seller ordinarily necessary for the
uninterrupted continuation of normal business operations of the seller corporation. 186 B.R. at 608 n.4.
Of the four elements, the continuity of shareholders has been held to be the most significant. 186 B.R. at 608 n.5.
Return to Small Business Counsel Home Page