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Indiana Court of Appeals Expands De Facto Merger Exception to the General Rule Regarding Corporate Liability for Debts - Commercial & Bankruptcy Law News

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Commercial & Bankruptcy Law News


Posted on: Apr 16, 2020

From Krieg DeVault LLP:

On March 2, 2020, in New Nello Operating Co., LLC v. CompressAir, the Indiana Court of Appeals expanded the so-called “de facto merger” exception to the general rule that when one corporation purchases the assets of another, the buyer does not assume the debts and liabilities of the seller, holding that a lack of continuity of ownership between the seller and the buyer, and the failure to dissolve the seller corporation, are not fatal to a finding of a de facto merger – and thus upholding the buyer’s liability for a judgment rendered against the seller.

New Nello involved the following facts: Nello, Inc. (“Old Nello”) was managed by four officers who also owned 95-99% of Old Nello’s shares. Old Nello’s debt structure included a $10 million loan to a senior secured creditor (“Senior Lender”), a $3.4 million loan to a mezzanine secured lender (“Mezz Lender”), and a $1.4 million debt to the City of South Bend’s Industrial Revolving Loan Fund. The officers of Old Nello each personally guarantied the loan to Senior Lender. Old Nello defaulted on its loan to Senior Lender, and Senior Lender called the loan and the guaranty of Old Nello’s president. Meanwhile, CompressAir installed thousands of feet of compressed air and oxygen piping within Old Nello’s South Bend facility, and by the spring of 2017, approximately $39,000 of Old Nello’s debt to CompressAir remained unpaid. CompressAir then sued Old Nello, and six other creditors also filed complaints against Old Nello seeking payment for outstanding bills.

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This article was submitted by Kay Dee Baird, Krieg DeVault LLP. If you would like to submit content or write an article for the Commercial & Bankruptcy Law Section, please email Kara Sikorski at ksikorski@indybar.org.

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