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> While it would be nice for companies to honor such promises through mergers, it would make many toxic when the obligations of their generosity is what led to

by neilv 3y ago

> While it would be nice for companies to honor such promises through mergers, it would make many toxic when the obligations of their generosity is what led to their insolvency. Can you actually shed contractual obligations through mergers/sales of a business? Or do you need to do trickery like selectively buying assets, and hope a judge lets you get away with that?

pfdietz 3y ago
Someone buys assets but not obligations. The obligations are attached to an organization, not to something that organization owns. Also, bankruptcy causes anyone with such an obligation to stand in line with other creditors.
- jowea 3y ago
  IANAL and don't think it applies in this case, but I don't think you can pull that trick in an attempt of getting out of a debt at least. https://en.wikipedia.org/wiki/Fraudulent_conveyance https://en.wikipedia.org/wiki/Fraudulent_conveyance
- shiroiuma 3y ago
  So why should it be possible to buy assets and not obligations then? Perhaps this should be illegal: if you want to buy another company, you get stuck with the whole kit n' kaboodle. If the obligations are toxic, then don't buy it. We'd probably need a good regulatory body to investigate M&As though, to make sure some company doesn't split itself in half, with the good parts in one half and the bad parts in another, and then sell off the good part while letting the bad one fold.
  - pfdietz 3y ago
    > So why should it be possible to buy assets and not obligations then? If the sale was at an honest, market price, what would be the problem? The seller is fairly compensated and can use the money received to service any obligation. Bankruptcy has something called "clawback" where sales or payments by debtors within some time window before the declaration can potentially be "clawed back". There are defense against this, included the mentioned time limits. So one approach in splitting up a company is not leaving the debt burdened part too burdened, so it doesn't immediately fail. There have been a bunch of clawback cases filed in the FTX crypto exchange bankruptcy.

by neilv 3y ago

pfdietz 3y ago

Someone buys assets but not obligations. The obligations are attached to an organization, not to something that organization owns. Also, bankruptcy causes anyone with such an obligation to stand in line with other creditors.

jowea 3y ago
IANAL and don't think it applies in this case, but I don't think you can pull that trick in an attempt of getting out of a debt at least. https://en.wikipedia.org/wiki/Fraudulent_conveyance https://en.wikipedia.org/wiki/Fraudulent_conveyance
shiroiuma 3y ago
So why should it be possible to buy assets and not obligations then? Perhaps this should be illegal: if you want to buy another company, you get stuck with the whole kit n' kaboodle. If the obligations are toxic, then don't buy it. We'd probably need a good regulatory body to investigate M&As though, to make sure some company doesn't split itself in half, with the good parts in one half and the bad parts in another, and then sell off the good part while letting the bad one fold.
- pfdietz 3y ago
  > So why should it be possible to buy assets and not obligations then? If the sale was at an honest, market price, what would be the problem? The seller is fairly compensated and can use the money received to service any obligation. Bankruptcy has something called "clawback" where sales or payments by debtors within some time window before the declaration can potentially be "clawed back". There are defense against this, included the mentioned time limits. So one approach in splitting up a company is not leaving the debt burdened part too burdened, so it doesn't immediately fail. There have been a bunch of clawback cases filed in the FTX crypto exchange bankruptcy.