Avoiding Successor Liability for Energy Asset Purchases: Negotiating and Drafting Provisions for Buyers and Sellers

Description

Many energy companies may be facing bankruptcy due to the coronavirus pandemic. This makes them prime targets for third parties seeking to purchase assets at a reduced price. The purchase of energy assets may cause potential successor liability--energy and M&A counsel must identify areas of risk and effectively negotiate critical terms for the purchase of such assets.

Asset purchases are often the preferred acquisition structure because they allow a clear separation of liability between buyer and seller, unlike stock acquisitions or mergers. Generally, in asset purchases outside of the energy industry, attorneys typically focus on identifying potential risks stemming from product liability, fraudulent transfers, secured interests, bulk transfer laws, labor liability, and other crucial items. However, for asset purchases within the energy sector, additional factors must be considered.

For energy companies, successor liability can exist under CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act, and the Clean Air Act. Under current rules, purchasers will not be liable for a seller's federal environmental liabilities unless certain circumstances or stipulations are present.

Buyers' counsel can take several measures to mitigate the risk of successor liability with energy asset purchases with thorough due diligence, negotiating strong contract provisions, obtaining reps and warranties insurance, and using purchase price adjustments/holdbacks. In the bankruptcy context, assets can be purchased "free and clear" of competing claims and liability under Section 363 of the Bankruptcy Code.

Listen as our panel reviews the alternatives and solutions available to deal counsel to help buyers avoid or mitigate successor liability with asset purchases. The panel will also provide a detailed discussion of provisions unique to energy asset purchase agreements and best practices for energy and M&A counsel.