Understanding Successor Liability in Asset Purchases: Key Areas to Watch Out For

Do I need to be concerned about successor liability if I’ve structured my transaction as an asset purchase?

Several factors can drive the decision to structure a transaction as a pure asset purchase. At the top of the list is the simple desire to leave behind all liabilities. However, despite the clarity of purpose in the asset purchase agreement, there are a few instances where successor liability attaching to a buyer could still be a concern.

Three particular areas to be wary of are (i) environmental liability, (ii) product liability, and (iii) employment liability. Fortunately, these exposure areas can have their own dedicated insurance policies when the risk level supports it. As a buyer, if one or more of these potential successor liability risks are known concerns of the target, and you could be assuming them regardless of the purchase agreement language, then it may be prudent to accept the liability as an “Assumed Liability” in the purchase agreement and adjust the purchase price accordingly. Assumption of these liabilities would also enable a buyer to assume the seller’s preclosing policies, specifically insuring these risks.

It's important to consult with legal and financial advisors who can help you navigate potential successor liability risks. Reach out to the AssuredPartners M&A team for expert guidance to ensure a smooth and successful transaction.