Dozer, Inc. is a closely-held corporation incorporated in a state that has adopted the Model Business Corporation
Question:
Dozer, Inc. is a closely-held corporation incorporated in a state that has adopted the Model Business Corporation Act. Prior to 2012, Dozer’s business was organized into two divisions; neither was separately incorporated. The manufacturing division manufactured and sold bulldozers. The servicing division repaired and serviced bulldozers and other heavy machinery, including machines manufactured by companies other than Dozer. The manufacturing division accounted for 95% of Dozer’s assets and 85% of its net income. The servicing division accounted for the remaining 5% of Dozer’s assets and 15% of its net income.
On January 15, 2012, Dozer sold all of the manufacturing division assets, including its manufacturing plant, to Buyer Corporation, a wholly owned subsidiary of Parent Corporation created just for the transaction. Both Buyer and Parent are also incorporated in MBCA states. The consideration for the sale was Parent stock. As required by the sales agreement, Dozer distributed all of the Parent stock to its shareholders in a special dividend immediately after the sale closed.
Pursuant to the sales agreement, Buyer also agreed
- to assume all contractual liabilities associated with Dozer’s manufacturing business that existed at the time of the merger;
- to hire all of Dozer’s manufacturing employees and pay them the same compensation paid by Dozer;
- to hire Dozer’s CEO and CFO, but not any other Dozer officers, as officers of Buyer; and
- to add four of Dozer’s seven directors to Buyer’s five-person board of directors. After the sale, Buyer continued to manufacture bulldozers under the Dozer name. Plaintiff Corporation is a company that bought a bulldozer from Dozer on February 1, 2011, roughly a year before the sale to Buyer. On March 1, 2013, the bulldozer’s engine overheated and exploded, resulting in substantial damages to Plaintiff, its employees, and the construction project on which the bulldozer was being used. It is uncontroverted that Dozer is liable in tort for Plaintiff’s damages. However, Dozer’s assets are insufficient to pay the claim.
Discuss Buyer’s potential liability to Plaintiff.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill