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Buying a company’s assets? Liabilities may be included

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in Leaders & Managers,Management Training

If your organization is in good fiscal shape in these tough times, top brass may be looking to snap up the assets of failed companies at bargain prices. Remind management that it may end up picking up liabilities such as unemployment insurance claims if it doesn’t structure the deal correctly.

Recent case: When Newcor, which had a location in Michigan, filed for bankruptcy, it sold some of its assets, including the Michigan facility. Michigan’s labor laws provide that an entity that buys more than 75% of a business is the successor employer and “inherits” any employee liabilities.

When that issue arose in court, the buyer was able to show that it had bought far less than 75% of Newcor—but only after protracted litigation. Had it reviewed the purchase in detail first, it might have avoided litigation. (Midwest Rubber v. Michigan, No. 278223, Court of Appeals of Michigan, 2008)

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