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Comment by batmenace | Hacker News Reader

Well if the company goes bankrupt, theoretically other companies can buy e.g. 3M's patents / processes / subsidiaries and continue their production. THe company isn't unprofitable, so it would be sold off in parts and the proceeds of the sale (theoretically) would go towards settling lawsuits.

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or it might just be sold as a whole to another company, or continue to exist post bankruptcy

Unlikely though. Nobody would want to buy the company whole as that would include all of this liability. Selling of the individual parts to raise funds for paying the debts of the unsold parts of the business entering bankruptcy seems like the only way to go

Breaking it up doesn't change the liability post bankruptcy.

If I buy a candy bar from a bankrupt chocolate company I don't inherit any liability from the candy bar.

"Breaking up" a company by selling its assets and distributing the profits to creditors absolutely does vanish the liability.

I think maybe we're confusing terms here. Breaking up a company normally means separated into smaller existing companies. If you buy 3m's candy bar division, you still might be on the hook for the forever chemicals the candy shop dumped in the river.

If you're just talking about dissolving a company and selling off the tangible assets, not selling off functional business units then I agree, liability doesn't follow material Goods. This generally isn't considered breaking up a company.

Breaking up a large company into smaller ones during bankruptcy does not by default absolve the smaller companies of liability. Courts can add bankruptcy settlement terms that absolve a company of liability moving forward, but these can be applied to the company at all as a whole or the smaller businesses if it is broken up.

What statute or case law supports this distinction between material goods and business units?

It seems reasonable to me that you could absolutely purchase a business unit from a bankrupt company without any associated liabilities. Of course, you'd pay the full price for it (as compared to the discount you'd be able to negotiate if you accepted liabilities). And, of course, the proceeds of the sale would go to the creditors before the shareholders.

I am not a lawyer, but here is a decent summary [1]. The legal term you would be looking for is "successor liability".

Liability can be servered from a operational buisness unit, but it basically requires the court intervention to formalize the seperation. Liability follows the functional business so that sale can't be used to evade liability.

Imagine if this wasnt the case. 3M could take on 100B debt, sell the bussness & assets to "4M" , leaving "3M" with no funds or assets for the creditors to go after.

https://www.ballardspahr.com/insights/alerts-and-articles/20....

Thanks for the link.

I didn't say it removed the liability of the company. It just means that the company that is left after selling off its profitable assets has the burden of the liability but with nothing but literal toxic assets. They can use the proceeds of the sales to start paying down the debts.

The assets sold would obviously not be the toxic assets.

See my response to the sibling post for Clarity on what I mean.

The nature of the liability depends on what is being sold off and the terms of the bankruptcy settlement

right, but you introduced "breaking up" into the conversation

Maybe I'm misunderstanding, but you said the company would be sold off in individual parts to pay the debt.

My point is that selling it off as a complete company or mini companies doesn't really impact the liability. Both would be possible. What matters from a debt or liability perspective is the terms of the settlement.

In reality, the company is probably worth more as a single entity, sorry I wouldn't be surprised if it stays that way. That would maximize the recovery of damages and repayment of debt.

You sell of the formulas for scotch tape, and maybe the factories that make it as long as it is sequestered from the PFAS type stuff. You sell of the audio tape/VHS factories (haha). You sell off the patents/copyrights for all of that stuff as well. Those are the salable parts.

You can do that, but it isnt very practical.

My point is that the whole thing is sellable. Propbably with a new stock offering for the whole company as a single entity.

If there is a huge judgement larger than the market cap, the most likely oputcome would be chapter 11 bankruptcy wiping out the investors, and the company moving forward as a single entity with a new ticker and new investors

This is the best of all worlds because it maximises the money recovered for damages and debtors.

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