Legal Question in Business Law in New York

Does liability pass with a Corporate Merger?

I have a civil discrimination lawsuit pending against a former employer (XX). XX has just signed an agreement with a company (YY) to sell them the assets (all cash deal)of the division where I worked. XX has also signed an agreement to merge with another corporation (ZZ) for stock and cash. After all of this is done, XX will no longer exist and its remaining businesses will be a part of ZZ. Will my lawsuit automatically revert to a liability to ZZ? How can I assure that my suit continues(in 2nd Fed Dist Court)? Any answers, opinions, & referrals are welcome!


Asked on 7/19/00, 8:35 am

1 Answer from Attorneys
David Wright Law Offices of David Wright

Re: Does liability pass with a Corporate Merger?

Generally the sale of assets relieves the purchaser of the selling corporation's liabilities. Versus a stock deal, where the liabilities generally follow. However, there are many, many exceptions and variations. For example, if the business of the company is to sell merchandise from inventory, it might be subject to the Bulk Sales Act, Article 3 of the Uniform Commercial Code. This requires the purchaser of the assets to give certain notices to creditors of the seller, or else he may carry those liabilities. Another exception is if the proceeds of the assets sale are distributed to the shareholder(s) of the selling corporation; generally a corp. is required to provide for known creditors' claims before distributing its assets.

If you have a pending litigation, sometimes the court will enjoin such a transaction, or at least require the corp to set aside a reserve.

Read more
Answered on 9/19/00, 7:30 am


Related Questions & Answers

More Business Law questions and answers in New York