In the construction industry it is fairly common to see subcontractors, general contractors, or builders shut their corporate entity down, only to emerge shortly thereafter as a new entity performing the exact same tasks, often from the same location, and with the same phone number. Joe’s Heating and Air becomes Joseph’s Heating and Air with debts purportedly left to be the responsibility of the previous company. Although winding down a company can often be an effective means of shielding oneself from liability, so long as there is no personal guarantee involved, North Carolina law does provide some options for creditors seeking to impose successor liability on companies that have gone under, only to come back with a new name and a new entity. Maginnis Law represents contractors, companies, and creditors in civil disputes relating to successor liability matters. To discuss breach of contract collection matters relating to successor liability, contact the firm at 919.526.0450 or submit a new case inquiry here.
Under North Carolina law, when a corporation purchases all, or substantially all, of the assets of another corporation, the purchasing corporation is generally not liable for the selling corporation’s debts or liabilities. However, there are four primary exceptions to this rule:
- Where the new company has expressly or implicitly assumed the liabilities of the previous company. Some companies in asset purchase agreements do assume some liabilities of the previous company, particularly when personal guarantees are involved for the previous owner.
- The new and old companies have proceeded with a de facto merger. This might include instances where there is a continuation of previous management, personnel, physical location, assets, or general business operations. Meanwhile the old company dissolves completely with a continuity of shareholders between the old company and the new company
- The old business – new business transaction was a fraudulent transaction with fraud done to avoid claims of creditors.
- The new company is a mere continuation of the previous company. Along with some of the same traits of the de facto merger, you might see inadequate payment made by the new company to obtain the assets of the old company.
Maginnis Law has handled many matters involving dissolving companies in the construction industry but we have also seen phantom dissolutions come up in the furniture industry and the staffing industry. Contact the firm at 919.526.0450 for assistance with successor liability litigation, for a consultation regarding properly dissolving your company, or for assistance with an asset purchase agreement between two businesses. Maginnis Law, PLLC is a Raleigh civil litigation firm handling construction, business litigation, breach of contract, and collection of accounts receivable throughout Wake County, including Morrisville, Wake Forest, Holly Springs and the rest of the Triangle area. Contact the firm to discuss your civil issues or submit a new case inquiry here.