Study On The Successor Liability Rules In Asset Acquisitions In America

For purpose of promoting the free transferability of business assets to encourage the assets'productive use in a market economy, as a general rule in asset acquisitions, the asset acquirer is not automatically liable for the debts and liabilities of the transferor including future and contingent tort liabilities, which is called no-liability principle in asset acquisitions. However, the no-liability principle may frustrate the protection of the interests of future and contingent tort creditors. Considering the necessities of protecting the interests of future and contingent tort creditors, courts in America decide that an asset acquirer should be treated as a"successor"to the transferor in appropriate cases(where asset purchaser expressly or impliedly agrees to assume the future and contingent liabilities of seller; the transaction is an effort to fraudulently avoid the future and contingent liability; the transaction amounts to a de facto merger or consolidation; asset purchaser is a mere continuation of seller; there is substantial identity between the operations of seller or asset purchaser; asset Purchaser manufactures same product line as seller) ,and is liable for the transferor's debts as though it were the transferor, thus to provide future and contingent tort creditors with an avenue for recovery in appropriate cases against successor entities, and to prevent any market subject from maliciously avoiding its future and contingent through asset acquisition,for example, when a company engages in production of defective products , with a view to evading future and contingent product tort liabilities, after gaining huge profits its owners establish a new shell company to purchase all the assets of the old company, and the old company ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible, then the new company continues the business operation of the transferor. The rules applied in appropriate cases to render asset acquirer liable for the transferor's debts as though it were the transferor are called successor liability rules (including (1) express or implied assumption, (2) fraud, (3) de facto merger, (4) mere continuation, (5) continuity of enterprise, and (6) product line.), which are exceptions to the no-liability principle. Considering there is no successor liability rules or other relevant laws or rules about the protection of the interests of future and contingent tort creditors in asset acquisitions, this article studies upon the successor liability rules, which I hope to be beneficial to the perfection of the legislation on the protection of the interests of future and contingent tort creditors in asset acquisitions.This article includes three sections. Section one of this article examines the limits of no-liability principle and the emergence of the successor liability rules in asset acquqisitions. Firstly, it defines the concept of asset acquisition and analyzes its legal features; Secondly, it analyzes the theoretical basis or justifications and limits of no-liability principle in asset acquisitions; Thirdly, it demonstrates the necessities of protecting the interests of future and contingent tort creditors; Lastly, it introduces the emergence and development of successor liability rules and analyzes the legal characters of successor liability.Section two of this article examines the application and theoretical basis of successor liability rules. It elaborates how to apply the four traditional theories and the two modern theories of successor liability rules, and studies the special application of successor liability rules in asset acquisitions in liquidation and bankruptcy procedures .It also explores the theoretical basis or justifications of successor liability rules.Section three of this article examines how to use the successor liability rules for reference in China. Firstly, it outlines the present situation of the legislation on the protection of the interests of future and contingent tort creditors in asset acquisitions. Secondly, it discusses how to introduce the successor liability rules into China. It concludes that to apply the successor liability rules to what an extent of cases, as well as to provide an avenue for recovery for what an extent of future and contingent tort creditors is a question of legislative value judgments, which finally depends on whether the legislators attach more importance to the interests of asset acquirers and values of no-liability principle or to the interests of future and contingent tort creditors.