Many executives understand that now is an opportune time to grow their businesses through strategic mergers, acquisitions or joint ventures provided they can structure the transaction to leverage their opportunities in the U.S. or overseas while addressing and minimizing customary business challenges and cultural differences.

Based on my experience there are generally four areas of successor liability that can arise in asset acquisitions in the U.S. I call them the 4Es of Successor Liability.

  1. Employment

Successor liability can arise in a variety of employment related areas. A few areas in the U.S. (and even abroad) include (a) wage payment practices, (b) unions, and (c) employment taxes. For example, find out which employees are paid hourly or receive a salary and their duties and responsibilities. A receptionist receiving a salary is a red flag.

  1. Employee Benefits

Although many buyers know that there is a possibility for successor liability for union pension or benefit plans in the U.S., successor liability can also arise from non-union benefit plans. Although no amount of due diligence can uncover all potential liabilities, be sure to ask questions on the policies and procedures of the plans in addition to reviewing plan documents. For example, ask when employees 401k contributions are withheld and deposited and the process and timing? A response of: "we deposit the contributions before the 15th day of the following month" is a red flag.

  1. Environmental

We encourage our clients, even if only assets are purchased, to conduct environmental and health and safety due diligence. Even if real estate is not being acquired or leased from the target, buyers should still review if there are possible health and safety issues associated with the target's conduct of its business. In many instances, an on-site visit can give a good indication if there is an issue. For example, when you are on-site, how is the air quality? Do you see an overabundance of dust?

  1. Export

In the past decade, the Bureau of Industry and Security and the Justice Department have been bringing charges against companies for an acquired a target's export violations. This is true even when the transactions are structured as acquisitions of only asset.

If you are a U.S. company acquiring an entity (assets or stock), you should review if the target (or its subsidiaries) engaged in transactions that violate U.S. export law. If the target exported items contrary to U.S. export law when the target was subject to U.S. jurisdiction, then the buyer can be held liable. Moreover, even if the target was not subject to U.S. export laws prior to the close of the transaction, all actions that would violate U.S. export laws must cease prior to closing.

Based on our experience, these 4 key areas of successor liability also arise in cross-border transactions. A good due diligence plan should cover these areas in order to ascertain the possibility of successor liability and implement strategies to minimize those risks. Sometimes, due diligence will highlight a significant legal risk. It is easy to become emotionally invested in a transaction, and lose sight of the ultimate goal, but being prepared to walk away can create a clearer picture of the business realities.