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Latest ABI Podcast Examines the Evolving Role of Successor Liability in Bankruptcy Cases

Alexandria, Va.— The latest American Bankruptcy Institute (ABI) podcast features former ABI Resident Scholar Prof. Melissa Jacoby talking with Michael H. Reed, Special Counsel to Pepper Hamilton LLP (Philadelphia, Pa.), about important issues and trends related to successor liability in chapter 11 cases. Successor liability arises when the purchaser of assets of a business may be held accountable for the seller’s debts and liabilities where: (a) the purchaser expressly or implicitly agrees to assume liability; (b) the purchase is a de facto consolidation or merger; (c) the purchaser is a mere continuation of the seller; or (d) the transfer of assets is for the fraudulent purpose of escaping liability. “The successor liability battle is not so much a fight over the existing bricks and mortar of the company, but rather a battle over the future revenues of the reorganized enterprise,” said Reed, who has participated in cases and written scholarly articles on the issue of successor liability since the 1990s.

Reed provides several illustrations of the complexities presented by “future claims” within cases involving product liability, such as General Motors and Chrysler, mass tort claims and environmental claims, such as those in the current case of Walter Energy. "Bankruptcy courts do not want to preside over reorganizations that appear to permit companies that have contaminated property to escape liability for that and for a purchaser to acquire the business without making adequate provision for environmental remediation," Reed said regarding environmental claims.

Reed said that the best remedy for ironing out successor liability claims in chapter 11 cases is through adequate notification by the courts. “Given the speed with which many chapter 11 cases now proceed through comprehensive first-day orders and quick sales of assets, bankruptcy courts should be vigilant to ensure in cases where there's a possibility of successor liability [that] adequate notice is given to all potentially affected parties,” Reed said. “Now this may be easier said than done when you have the possibility of future claims.”

Click here to listen to the podcast.

ABI’s podcast series features interviews with important figures or experts discussing timely bankruptcy topics or issues. ABI podcasts are freely available to members, the public and the press, and can be accessed on ABI’s Newsroom website.

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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 12,000 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.abi.org/calendar-of-events.

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