Comment on A VPN Company Canceled All Lifetime Subscriptions, Claiming It Didn’t Know About Them
deltapi@lemmy.world 1 month agoIf the new owners purchased the assets, name, and technology and not the company itself, then it’s beholden on the remains of the old company to honour the deal… Good luck with that.
Which is a problem of the legal system around it.
Within most(or all) EU countries this would count as a continuation of business and all previous liabilities (e.g. employees contracts, customers contracts, etc.) would need to be honored.
Why it is done this way? To prevent people from doing exact that.
Except what you’re describing doesn’t make sense. If the new owners purchased all of those things, then in reality they purchased the company. Courts are very likely to agree on this. It looks like a company-wide sale, therefore it probably is, even if someone tries to add a line saying “we aren’t liable”.
But imagine someone could “sell everything other than the liability”. In such a case, the seller would be putting themselves on the hook to pay outstanding debts (i.e., the seller would be liable). And we know they have money – they just sold the thing. So then the seller would pay… But they know that in advance, so they would not agree to such a sale in the first place, unless they were planning to steal that money through creative accounting of some kind… But both parties know all of that that in advance, so they would both be acting fraudulently.
It happens regularly. The most notable ‘tidy’ example I can think of would be when the Governments of US and Canada ‘bailed out’ General Motors. They did exactly what I’m talking about; they created a new legal entity called NGMCO Inc. which purchased almost all the Assets of the ‘old’ GM, including trademarks, names, websites, etc.
The key here is that the selling company was bankrupt. In such a case, the creditors want to try to get money back out of their ‘investment’ so the asset sale is done to cover debts. Selling liabilities generally doesn’t raise money for those creditors, so often after the money is all sucked out, whatever remaining liabilities exist are functionally void. Legally they remain until the corporation is dissolved, but with no ability to act on the liabilities (ie., no money to pay) this doesn’t functionally matter.
The ‘old’ GM changed it’s name to ‘Motors Liquidation Company’ and retained the liabilities. Shareholders of the ‘old’ GM were left holding the bag, so to speak. Technically, it was further split into trusts to ‘handle’ liabilities, but realistically ‘old’ GM sputtered out holding liabilities while ‘new’ GM carried on with minimal penalty.
You can have less ‘tidy’ cases as well, where substantial parts of a company are sold in an asset sale/purchase but leave behind a working company. In those cases the liabilities are not functionally abandoned. Disney purchasing FOX, for example.
Further reading:
www.investopedia.com/terms/a/asset-sales.asp
reuters.com/…/oldgm-exit-idUSN3121109620110331/?f…
w3dd1e@lemm.ee 1 month ago
How many people start companies, rack up a bunch of debt, then create another company that buys everything except the debt?
shalafi@lemmy.world 1 month ago
NOW you’re getting it.
deltapi@lemmy.world 1 month ago
This is the exact reason GM still exists.