Successor Liability In Asset Acquisitions

It is a well-established principle in Canada that where two corporations amalgamate, the new, continuing corporation assumes all of the liabilities and obligations of each of the constituent corporations. In order to avoid this consequence, businesses seeking to make acquisitions may decide to structure their transactions in a way that allows them to choose which liabilities to assume. In theory, this type of transaction, an asset acquisition, can be structured such that the liabilities, if any, which are assumed by the purchaser are specifically identified in the agreement and accounted for in the purchase price.

The ability to limit liability by way of an asset purchase agreement is subject to a number of exceptions. Many of these exceptions are statutory, such as those found in employment standards, labour relations, bulk sales, personal property security, and environmental legislation. The fact that these exceptions are legislated allows the parties to an asset