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

Federal Regulations and Key Rules, Allocating and Managing Risks in Structuring Transactions

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Wednesday, October 7, 2020

Recorded event now available

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Course Materials

This CLE course will guide energy and M&A attorneys through critical negotiation and drafting techniques to avoid successor liability for energy asset purchases. The panel will discuss federal and state law considerations, essential provisions when structuring transactions for both buyers and sellers, allocating and managing risks, and other crucial matters in purchasing energy assets.

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.

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Outline

  1. Successor liability in energy asset purchases
    1. Environmental laws
    2. Federal and State Permits
    3. De facto merger/mere continuation
    4. Fraudulent transfer risk
  2. Tactics to minimize risks
    1. Due diligence
    2. Key contract provisions
    3. Reps and warranties insurance
    4. Purchase price adjustments
    5. Purchases in Bankruptcy /Section 363 sales
      1. Sale “free and clear” under Section 363(f)
      2. “No successor liability” provisions
      3. Limits of bankruptcy protection

Benefits

The panel will review these and other key issues:

  • What are the circumstances under which asset buyers may be held liable as successors for energy asset purchases?
  • What facts and circumstances unique to the energy industry impose successor liability for energy asset purchases?
  • What are the primary considerations for counsel when assessing whether to advise a client to proceed with an asset purchase instead of a stock acquisition or merger transaction?
  • Best practices for deal counsel to mitigate the risk of successor liability when negotiating an energy asset purchase agreement.

Faculty

Madden, Michael
Michael J. Madden

Partner
Hunton Andrews Kurth

For over two decades, Mr. Madden has advised energy developers and investors in their finance, mergers and...  |  Read More

Rich, Robert
Robert A. Rich

Partner
Hunton Andrews Kurth

Mr. Rich's practice focuses primarily on representation of corporate debtors, secured and unsecured creditors,...  |  Read More

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