Asset deal | In Principle

An asset deal means a transaction in which the enterprise of a company is acquired, or an organised part of the enterprise. The sale of specific assets may also be referred to as an asset deal, but M&A transactions generally involve an entire enterprise or line of business, rather than a few individual assets.

Asset deals enable the buyer to expand or complement its existing business to include the business previously conducted by the seller. In an asset deal it is possible to divide out certain elements of the enterprise and acquire only defined parts.

In an asset deal, corporate matters are not examined because title to the company’s shares is not the subject of the transaction and the buyer will not join the seller’s corporate structure. The party to the transaction is not the shareholders but the company itself, which is the seller of the enterprise, an organised part of the enterprise, or specific assets. In this case, however, the assets being acquired require
a more thorough analysis.

This is not the case with real estate, however, because in an asset deal the acquirer is protected by the warranty of public reliance on the land and mortgage register, which essentially means that if the seller of the property is entered in the land and mortgage register as the rightful owner, the seller may effectively transfer title to the property to a good-faith purchaser even if the seller is not in fact the rightful owner.

Subject of transaction

The subject of the transaction in an asset deal is an enterprise or an organised part of an enterprise, or, less often, specific assets of the enterprise.

Under Civil Code Art. 55¹, an enterprise is defined as an organised set of tangible and intangible assets intended for conducting economic activity. An enterprise includes more specifically the enterprise name (distinguishing designation of the enterprise or distinct parts of the enterprise), ownership of real estate and movables, including equipment, materials, goods and products, and other in rem rights to real estate or movables, rights under lease and tenancy agreements for real estate or movables, and rights to use real estate or movables under other legal grounds, claims, rights to securities and cash, concessions, licences and permits, patents and other industrial property rights, economic copyright and related rights, trade secrets, and books and records connected with the conduct of economic activity.

It should be borne in mind that unlike in the case of a corporate merger, conversion or division, where rights and obligations held by the company are transferred through “universal succession,” transfer of an enterprise results in “singular succession.” In the case of singular succession, the ability to assign each right or assume each obligation is examined individually, in light of specific regulations or contractual provisions which may prevent or restrict transferability to a third party.

Under Civil Code Art. 55¹, a transaction involving an enterprise covers everything included in the enterprise unless otherwise provided in the transaction or by specific regulations. Thus, under an agreement selling an enterprise, concessions, licences and permits pass to the buyer, unless otherwise provided by mandatorily applicable regulations, decisions of competent authorities, or the terms of the agreement. It should be borne in mind in this respect that in the case of sale of an enterprise, succession applies only to assets and not obligations. If a transaction involving an enterprise includes contracts, effective transfer of the obligations arising under the contracts requires the consent of the other party (the creditor) under each contract. If the seller of the enterprise wishes to transfer to the buyer only certain elements of the enterprise, it is necessary to include appropriate provisions in the agreement for sale of the enterprise.

Transfer of an enterprise or organised part of an enterprise also results by operation of law in transfer of the employees of the enterprise (or the employees whose work is connected with the part of the enterprise that is being sold).

Buyer’s liability for obligations

A very important issue for the acquirer is the liability imposed on it by operation of law for the obligations arising out of the operations of the enterprise. Upon acquisition of the enterprise, as a rule, the acquirer becomes jointly and severally liable with the seller also for past obligations, up to the value of the acquired enterprise. This liability also applies, for example, to employment obligations.

For this reason, an agreement on sale of an enterprise will typically contain provisions allocating the risks and liabilities between the parties, under which the acquirer may seek recourse against the seller for amounts necessary to satisfy past obligations incurred by the seller, and providing that if the acquirer itself pays such obligations it can pursue recourse claims against the seller.

Form

Sale of an enterprise must generally be made in writing, with notarised signatures, but if the enterprise includes real estate, the agreement must be made in the form of a notarial deed.

Seller’s liability under warranty for defects

The statutory warranty on sales applies as relevant to the sale of an enterprise or organised part of an enterprise. The statutory warranty provisions are an important instrument to protect the buyer in an asset deal, supplementing the buyer’s general claims for breach of contract.

Corporate approvals

The sale by a limited-liability company or joint-stock company of its enterprise (or an organised part of the enterprise) requires consent of the shareholders’ meeting. If the appropriate shareholders’ resolutions are not obtained, the sale of the enterprise is invalid.

In the case of a joint-stock limited partnership (SKA), sale of the enterprise or an organised part of the enterprise requires the consent of all the general partners, or is invalid. Consent of the general meeting of shareholders is also required for the transaction to be valid, because regulations concerning the general meeting of shareholders of a joint-stock company also apply directly to a joint-stock limited partnership.

In the case of other types of partnerships governed by the Commercial Companies Code, sale of the enterprise without the required corporate approvals is valid, but may (and most often does) result in liability of the partners who signed the sale agreement.