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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.
Successor liability is a consideration in any transaction involving the purchase of business assets.
For information, questions, comments, etc., contact us at katzlawoffice or at the telephone or fax numbers set out on these pages. PLEASE NOTE: (1) the transmission of e-mail may not be secure and, in any event, would not create an attorney-client relationship; (2) we limit our practice to Pennsylvania (provided, however, we assist Pennsylvania clients who have matters outside of Pennsylvania with the assistance of local counsel); (3) the discussions in these pages are for general information and are not intended to be, and do not constitute, legal advice and are not a substitute for legal assistance -- we recommend you engage the services of a professional licensed to practice in your jurisdiction for legal advice and representation when confronted with any legal matter; (4) the engagement of our firm is subject to a written engagement agreement (and the terms and conditions of that agreement). Utilization of this site does not create a legal relationship.
