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Buying Assets of a Company Beware of FLSA Liability According to June ABI Journal Article

Alexandria, Va. — Buyers of distressed companies in state receiver actions must take care to ensure that they are protected from liabilities that they did not agree to assume, according to an article in the June ABI Journal. “Purchasers of distressed assets should insist on sale orders with clear and unequivocal language authorizing the transfer of assets ‘free and clear’ of claims and precluding any assertions of successor liability,” Paul Ferdinands and Jeffery R. Dutson of King & Spalding LLP write in their article, “Successor Liability under the FLSA.” Ferdinands and Dutson examine Teed v. Thomas & Betts Power Solutions LLC, in which the Seventh Circuit recently ruled that a purchaser that acquired substantially all of a company’s assets through a state court receivership sale was subject to successor liability for back wage claims arising under the Fair Labor Standards Act (FLSA). “Sale orders often include provisions expressly limiting the liabilities that can be asserted against the purchaser and in many jurisdictions, precluding creditors from asserting claims based on theories of successor liability,” the authors write. “Buyers of financially distressed businesses are wary of exposing themselves to any unknown or unquantifiable liabilities of the target company.” In the Teed case, Ferdinands and Dutson write that the sale order contained language that undermined the provisions barring successor liability under the federal common law standard for successor liability under FLSA. The language had been inserted in an attempt to stave off an objection filed by the plaintiffs’ counsel. “Vague or contradictory language can lead to uncertainty and can open the door to successor liability claims,” according to Ferdinands and Dutson. “Although the facts in Teed are distinguishable from most asset sales pursuant to § 363, the case is a strong reminder that the language in a sale order matters.” To obtain a copy of “Successor Liability under the FLSA,” published in the June issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org. ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.