Corporate – Asset Purchase – ‘Mere Continuation’ – Same Directors – Not Enough

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When a company’s assets are purchased, the fact that the buyer continues the predecessor company’s operations with the same officers is not enough to hold the successor corporation liable for the predecessor company’s liabilities.

We reverse the Court of Appeals’ decision, which upheld the trial court’s ruling that plaintiffs could recover from the successor corporation.

One way that a successor or purchasing corporation can be held liable for the debts of a predecessor or seller is if the successor company is a mere continuation of the predecessor.

In this case, the Court of Appeals erred by finding that carryover of corporate officers resulted in a mere continuation when there was no commonality of shareholders and directors between the new company, Eagle, and its predecessor, Eagle & Taylor.

The majority decision in Simmons v. Mark Lift Industries, Inc., 366 S.C. 308, 622 S.E.2d 213 (2005), explained that under the traditional approach, the mere continuation exception is “applicable only when there is commonality of ownership, i.e., the predecessor and successor corporations have substantially the same officers, directors, or shareholders.” Despite the use of “or,” the preceding clause of that sentence indicates that commonality of ownership is required for the exception to apply.

In the corporate context, without commonality of shareholders, there is no commonality of ownership. Moreover, the sentence that follows carries the full force and effect of the majority’s holding: “We decline to extend the exception to cases in which there is no such commonality of officers, directors and shareholders.”

The Court of Appeals erred by finding Simmons only required commonality of officers to establish a mere continuation while failing to acknowledge the clear and unequivocal language declining to extend the exception beyond instances where there is commonality of officers, directors, and shareholders.

The trial court’s “mere continuation” analysis mirrored the dissent in Simmons and focused heavily on Eagle’s name, location, website, and goodwill. This erroneous analysis falls within the continuity of enterprise theory of successor liability that the Simmons majority flatly rejected.

With only commonality of officers but no commonality of directors or shareholders, the Court of Appeals erred in affirming the trial court’s conclusion that Eagle is a mere continuation of predecessor Eagle & Taylor.

There is no evidence in the record to support the trial court’s finding that there was any shareholder continuity between Eagle and Eagle & Taylor. While some officers were given shares in Eagle after the acquisition, none of them owned any shares in Eagle & Taylor.

The record indicates the corporate officers were the only group with commonality between Eagle and its predecessor. Because there was no commonality of shareholders and directors between Eagle and Eagle & Taylor, we reverse the Court of Appeals’ finding of successor liability.

Reversed.

Nationwide Mutual Insurance Co. v. Eagle Window & Door, Inc. (Lawyers Weekly No. 010-082-18, 13 pp.) (Kaye Hearn, J.) Appealed from the Circuit Court in Spartanburg County (J. Mark Hayes, J.) On writ of certiorari to the Court of Appeals. G. Dana Sinkler and Ainsley Fisher Tillman for petitioner; Jason Imhoff and Ginger Goforth for respondents. S.C. S. Ct