[hansvm]

> If they buy your entity (stock transaction) it comes with all the legal liability

For dying companies, most of the time it's fraudulent and illegal to create a transaction divesting the good assets from the bad debts. Why is that potential problem not an issue for a proposal to sell off everything good and leave behind an insolvent shell?

[GoRudy]

That's not how these things work. When a company sells an asset the funds go back to the company that sold that asset. So if the "seller" has debts or other obligations those still remain and proceeds from the sale would go towards satisfying those. However, in this case it sounds like the deal was largerly about the employee costs + some cash to the sellers.

[disillusioned]

I mean, this is literally what an Assignment for the Benefit of Creditors (ABC) acquisition is (or an Article 9) and the specific goal of an ABC is to allow for some semblance of the company's assets to persist unencumbered by an acquirer and without creditors having any further rights to their debts, aside from what they can claim from the proceeds of the ABC.

It's an alternative to bankruptcy that allows for the continued functioning of the business in many cases, and it absolutely leaves behind an insolvent shell. (And acquirers will go through great pains to avoid incurring "successor liability.")

[vetrom]

I'm not sure you answered the question here though, why should that sort of transaction be legal? Is there a compelling public interest in allowing this sort of transaction?

[devilbunny]

It's a pretty common way for companies to go through bankruptcy. If the courts can identify a viable business inside the company, where the main problem is debt that it can't feasibly pay, they will allow it to proceed with business while cancelling the debt. Since the alternative is having the whole thing go under, without much chance of creditors being made whole, there is a benefit to society: some of the people keep their jobs.