Few doctrines at common law evoke more trepidation for the buyers in an asset purchase agreement than the doctrine of corporate successor liability.
An American principle, successor liability establishes that, in an asset acquisition, the purchaser corporation may be held responsible for the liabilities of the seller. This can occur even if those liabilities were not expressly assumed by the buyer.
The concept of successor liability is not entirely foreign to Canadians. Most liabilities on successor corporations are statutorily imposed in both the U.S. and Canada. For example, these statutes require that the successor company pay out wages or conduct environmental remediation as a result of the predecessor’s conduct. None of this is particularly new or controversial in Canada.
However, at common law, the doctrine is used to hold the asset buyer liable for the contractual breaches or the tortious conduct of the seller. In Canada, the doctrine is shrouded with mystery.
Originally Publish in The Lawyer's Daily
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