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Parker v. Henry A. Petter Supply Co.4/1/2005
, and the ownership, management and business differed substantially from that of IRECO. Thus, the court concluded Mine Equipment & Mill Supply did not succeed to Mine and Mill Supply's liability and that Parker could have pursued IRECO as a defendant.
The general rule regarding liability of a corporate successor in Kentucky is that a purchasing corporation does not assume liability for the debts and liabilities of the selling corporation. Pearson ex rel. Trent v. National Feeding Systems, Inc., 90 S.W.3d 46 (Ky. 2002); American Railway Express Co. v. Commonwealth, 190 Ky. 636, 228 S.W. 433 (1920). When the sale of a corporation is a bona fide transaction, and the selling corporation receives money to pay its debts or property that may be subjected to the payment of its debts and liabilities, the purchasing corporation will not, in the absence of a contract obligation or fraud, be held responsible for the debts or liabilities of the selling corporation. Pearson at 49.
There are four exceptions to the general rule:
(1) where the purchaser expressly or impliedly agrees to assume such debts or other liabilities;
(2) where the transaction amounts to a consolidation or merger of the seller and purchaser;
(3) where the purchasing corporation is merely a continuation of the selling corporation; or
(4) where the transaction is entered into fraudulently in order to escape liability for such debts.
Id. at 49, citing American Railway, 228 S.W. at 437-41.
While IRECO assumed the debts of its predecessor, Mine Equipment & Mill Supply did not agree to accept debts and liabilities other than those contained on a schedule titled Trial Balance. Parker alleges, nevertheless, that Mine Equipment & Mill Supply is merely a continuation of its predecessor corporations and is subject to successor liability. He argues that this continuation is shown by the assets purchased by the corporation and the intention to continue the same business as the selling corporation.
In Kentucky, a determination of the continuity of a corporation after a sale depends on examining the sale agreement to determine continuity of shareholders or management. Pearson, 90 S.W.3d at 51. Even where an adequate consideration was paid for the assets, a successor company which continues with the same business, by the same officers and personnel, in the same location with only a slight change in name will be considered liable for the debts and liabilities of the selling company. Payne-Baber Coal Company of Kentucky v. Butler, 276 Ky. 211, 123 S.W.2d 273, 275 (1938). The trial court compared the shareholders and management of the purchasing company, Mine Equipment & Mill Supply, with its predecessors, which was the correct analysis under Kentucky law.
The facts of the transactions at issue show: In 1987, a company named Mine and Mill Supply Company, Inc., sold the bulk of its assets to IRECO, Inc. IRECO purchased the assets, including certain real estate , and in addition purchased "all debts, liabilities, obligations, contracts, and commitments" from Mine and Mill Supply. Approximately a month later, in May 1988, IRECO sold approximately the same assets to Mine Equipment & Mill Supply Company. Mine Equipment & Mill Supply was incorporated in Delaware on May 20, 1998. Mine Equipment & Mill Supply was a wholly owned subsidiary of Midland Powder which was owned 50% by David L. Childs and 50% by Dyno Nobel.
Mr. Childs became president of Mine Equipment & Mill Supply at the time it acquired from IRECO most of the assets previously owned by Mine and Mill Supply. He had not been a shareholder or offic
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