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Successor Liability - Considering an Asset Purchase vs. Equity Purchase

Posted Wednesday, January 3, 2018

A fundamental consideration for purchasing a business is structuring the transaction as either an asset purchase or an equity purchase.  While an equity purchase may offer certain benefits to a potential buyer, an asset purchase is the overwhelming victor in the liability arena.  This notion was echoed in the 2017 case of McGraw v. Superior Aviation Ltd.

McGraw is a federal airplane crash case that examined Wisconsin successor liability law.  Superior Aviation, Ltd. was responsible for the maintenance and repairs of the plaintiff's airplane, which, after being regularly inspected by Superior, lost power and made an emergency landing near Crivitz, Wisconsin.  However, a few days before the crash, Kubick Aviation Services, Inc. purchased almost all of Superior's assets.  Significantly, the purchase agreement provided that Kubick was not responsible for Superior's liabilities.  The plaintiff sued both Superior and Kubick, alleging Kubick's liability as a "successor" to Superior.  Ultimately, the Court rejected this position, holding that Superior's liabilities did not transfer with its assets.

This decision illustrates both the benefits of an asset purchase over an equity purchase and the power of a well-drafted purchase agreement.  The Court's decision may have looked vastly different had Kubick purchased an equity stake in Superior.

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