You bought the assets. Can you still be sued for the seller’s debts?

Usually, no. New York’s default rule is that a buyer of assets does not inherit the seller’s debts. Four exceptions cut into that rule: express or implied assumption, de facto merger, mere continuation, and a sale made fraudulently to escape obligations. Which one a plaintiff reaches depends on how you structured the deal, not on what you called it.

Does buying a company’s assets make you liable for the seller’s debts in New York?

No, as a general matter. A corporation that acquires the assets of another is not liable for the predecessor’s obligations. The Court of Appeals fixed that rule, and its four exceptions, for tort liability in Schumacher, and the Appellate Division applies the same framework to contract debts. The fight is over the exceptions.

Law: Schumacher v Richards Shear Co., 59 NY2d 239, 244-245 (1983); Eastern Concrete Materials, Inc./NYC Concrete Materials v DeRosa Tennis Contrs., Inc., 139 AD3d 510, 512 (1st Dept 2016).

An asset sale is a purchase of things, not of a company. You bought equipment, inventory, receivables, a customer list, a trade name. You did not buy the corporate shell that owed the money. Where the seller survives, the creditor’s judgment runs against the seller.

So a plaintiff cannot simply allege that you now run the business. It has to plead facts fitting an exception. A complaint pleading none should be vulnerable, though the plaintiff gets every favorable inference and courts often allow an amendment.

What are the four exceptions to the no-successor-liability rule?

New York recognizes four. The buyer expressly or impliedly assumed the seller’s liabilities. The transaction was a consolidation or merger of seller and buyer. The buyer is a mere continuation of the seller. Or the transaction was entered into fraudulently to escape those obligations. Each carries a distinct proof requirement.

Law: Schumacher v Richards Shear Co., 59 NY2d 239, 245 (1983); Highland Crusader Offshore Partners, L.P. v Targeted Delivery Tech. Holdings, Ltd., 184 AD3d 116, 126 (1st Dept 2020).

What counts as express or implied assumption of the seller’s liabilities?

Express assumption means the purchase documents say, in words, that you are taking the liability. Implied assumption means you never said it but you acted like it. Courts read the assumption clause and your post-closing conduct together. Paying the seller’s old invoices is the fastest way to imply an assumption you never agreed to.

Look at the paper. A well-drafted asset purchase agreement has two operative lists: assumed liabilities and excluded liabilities. If the debt in suit is missing from the assumed list, and the excluded list sweeps in “all liabilities not expressly assumed,” the express-assumption theory is weak on the document’s face.

Implied assumption is the live risk, and it is proved by behavior after closing. Honoring the seller’s warranty claims. Paying the seller’s trade payables to keep a supplier shipping. Answering the seller’s customer complaints as your own. Performing the seller’s contracts without a written assignment.

Consequence: your conduct in the first ninety days after closing can create a liability your lawyer excluded in the agreement. And that clause answers only this one exception.

A non-assumption clause is a lock on the front door. Three of the four exceptions come in through the wall.

What is a de facto merger, and what factors do New York courts look at?

A de facto merger is a merger in substance that was papered as an asset sale. Courts look past what the closing documents call the transaction and ask whether the two companies actually combined. The hallmarks come from Fitzgerald v Fahnestock, and they are weighed flexibly, with form disregarded in favor of substance.

Law: Fitzgerald v Fahnestock & Co., 286 AD2d 573, 574-575 (1st Dept 2001); Matter of AT&S Transp., LLC v Odyssey Logistics & Tech. Corp., 22 AD3d 750, 752-753 (2d Dept 2005).

The hallmarks are:

• Continuity of ownership between the seller’s owners and the buyer.
• Cessation of ordinary business and dissolution of the acquired corporation as soon as possible.
• Assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the acquired business.
• Continuity of management, personnel, physical location, assets and general business operation.

Two things there matter to a defendant. The factors are weighed, not checked off, and no one factor is dispositive; the question is whether in substance you absorbed and continued the predecessor’s operation. And legal dissolution of the seller is not required. A seller shorn of its assets and reduced to a shell satisfies that factor.

Law: Matter of AT&S Transp., LLC v Odyssey Logistics & Tech. Corp., 22 AD3d 750, 753 (2d Dept 2005); Ladenburg Thalmann & Co. v Tim’s Amusements, 275 AD2d 243, 248 (1st Dept 2000).

The word “merger” appearing nowhere in the closing binder is not a defense. Neither is the word “purchase” appearing on every page.

Is continuity of ownership required, and what if you paid all cash?

Continuity of ownership decides most de facto merger fights in New York. The First Department treats it as the essence of a merger, and the Second Circuit reads New York law the same way. If the seller’s owners took cash and no stake in your company, that fact alone has defeated the theory in reported decisions.

Law: Matter of New York City Asbestos Litig., 15 AD3d 254, 256 (1st Dept 2005); Cargo Partner AG v Albatrans, Inc., 352 F3d 41, 45-47 (2d Cir 2003).

It is not a guarantee. Ownership is measured in substance, so equity held through a spouse, a trust, a holding company or a management rollover can supply it. Some courts also apply the factors more loosely in personal injury cases.

One First Department decision shows how far structure gets you. The asset buyer won summary judgment on assumption, de facto merger, mere continuation and alter ego. The case still went forward on what remained, including the fraudulent-transaction theory.

Law: Eastern Concrete Materials, Inc./NYC Concrete Materials v DeRosa Tennis Contrs., Inc., 139 AD3d 510 (1st Dept 2016).

So the first question is not what the agreement says about liabilities. It is: who owns you now, and did any seller principal get equity, a board seat, or an interest through a relative? Cash to strangers is a defense. Stock to insiders is an exposure.

What makes a buyer a “mere continuation” of the seller?

Mere continuation targets a reorganization in which one business survives under a new name and the predecessor is effectively extinguished. The First Department weighs whether substantially all assets moved, whether the predecessor was extinguished, whether the names are nearly identical, whether officers, directors or employees carried over, and whether the same business continued.

Law: Schumacher v Richards Shear Co., 59 NY2d 239, 245 (1983); Avamer 57 Fee LLC v Hunter Boot USA LLC (1st Dept, Aug. 7, 2025).

The seller’s continued existence is your best fact, but it is not an automatic answer. In August 2025 a divided First Department let a mere continuation claim proceed although the predecessor still existed, treating extinguishment as one factor rather than a formal test. A seller genuinely operating is a strong defense. An empty registration is not. And the trade name you bought is the cheapest fact a plaintiff has.

One point you can stop worrying about under state common law. New York refused to adopt the “product line” exception some states apply in strict products liability. Four exceptions, not five. Federal schemes, environmental and employment law among them, use broader successorship tests.

Law: Semenetz v Sherling & Walden, Inc., 7 NY3d 194 (2006).

When is an asset sale attacked as a fraudulent transfer?

When the sale is said to have put assets beyond the reach of the seller’s creditors. New York replaced its fraudulent conveyance statute with the Uniform Voidable Transactions Act for transfers made on or after April 4, 2020. Earlier transfers are governed by the former Uniform Fraudulent Conveyance Act. Two theories operate.

Law: Debtor and Creditor Law art. 10 (Uniform Voidable Transactions Act, eff. April 4, 2020); Debtor and Creditor Law secs. 273, 274.

The first is actual intent to hinder, delay or defraud, proved through the badges of fraud the statute lists. The second needs no bad intent: a transfer for less than reasonably equivalent value made when the seller was insolvent, was left with unreasonably small assets, or expected debts it could not pay.

Timing matters. A claim is generally extinguished four years after the transfer, and an actual-intent claim one year after the transfer was or could reasonably have been discovered, if later.

Law: Debtor and Creditor Law sec. 278.

The defense is built at the closing table. An independent appraisal. Consideration that reached the seller, not its principals. A price creditors could have chased. A sale that was not concealed. A buyer who took in good faith and for value also has a statutory defense.

Pleading helps you too. An actual-intent claim must be pleaded with particularity, and conclusory recitals that the sale was “a sham to defraud creditors” fail that standard. Courts do allow intent to be inferred from circumstances, so the advantage is limited.

Law: CPLR 3016(b); Debtor and Creditor Law sec. 273(b).

Can a successor liability claim be dismissed before discovery?

Sometimes, but expect resistance. Dismissal under CPLR 3211(a)(1) requires documentary evidence that is unambiguous and undeniable and that utterly refutes the allegations. Affidavits do not qualify. Courts have refused to dismiss where the documents left open a potential basis for successor liability the purchase agreement never addressed.

Law: CPLR 3211(a)(1); State Farm Fire & Cas. Co. v Main Bros. Oil Co., 101 AD3d 1575, 1576-1577 (3d Dept 2012).

So pick the right motion. Where the complaint pleads only that you bought the business and now run it, CPLR 3211(a)(7) is cleaner: no exception pleaded, no claim stated. Where it pleads facts the ownership records refute, summary judgment after targeted discovery is stronger.

Do not let the case drift. Successor liability discovery is intrusive by design. It reaches your cap table, payroll, leases and name filings. Narrow it early.

Are there liabilities that follow the assets no matter how you structured the deal?

Yes. Sales and use tax is the common one. Under New York’s bulk sale rules, a purchaser of business assets outside the ordinary course must notify the Commissioner of Taxation and Finance by registered mail at least ten days before taking possession or paying, whichever comes first. Skip that notice and you can owe the seller’s tax.

Law: Tax Law art. 28, sec. 1141(c); 20 NYCRR 537.4(c).

This is statutory, and the Schumacher exceptions are irrelevant to it. A clean non-assumption clause and an unrelated buyer will not help. Two things limit the damage. Liability is capped at the greater of the purchase price or the fair market value of the assets. And if you file the notice and withhold the consideration, the Department has ninety days from receipt to assert its claim.

If you closed without filing, tell counsel immediately. It is a distinct problem with its own clock, and it does not belong inside the successor liability defense.

What should you do first if you have been sued as a successor?

Reconstruct the transaction before you argue about it. The rule is on your side and the plaintiff is betting on the exceptions, so the facts that decide the case are structural: what you bought, what you paid, who received the money, who owns you now, and whether the seller is still standing.

• Pull the closing binder. The purchase agreement, the bill of sale, the liabilities schedules, the assignments. Name them and date them.
• Write down the consideration and who received it. If a seller principal holds equity in your company, flag it now, not at a deposition.
• Confirm the seller’s status with the Department of State, and whether it still has assets and operations. A functioning seller cuts hard against mere continuation. A shell does not.
• Stop making voluntary payments on obligations you did not assume. Ask counsel first, because stopping payment on a contract you did assume creates a different problem.
• Preserve documents. Litigation holds are cheap. Spoliation findings are not.
• Check whether the bulk sale notification was filed. Answer that before the first conference.
• Read the complaint for which exception it pleads. If it pleads none, that is a motion.

Then bring the closing documents and the complaint to counsel together. Prencipe International defends successor liability claims in New York, and the analysis starts with the structure of your transaction.