Jurisdiction

Can a buyer inherit pre-acquisition environmental liability in an asset sale or a share sale?

Can a seller retain environmental liability after an asset sale or a share sale?

Australia

Asset sale. When acquiring assets, any pre-acquisition liabilities associated with the assets generally remain with the seller. A buyer can agree contractually to assume the seller's pre-acquisition liabilities, although it is not possible to completely contract out of statutory duties.

Share sale. When acquiring a company's shares, the buyer also generally acquires any liabilities incurred by the company, as liabilities remain with the company post-sale.

Asset sale. A seller generally remains responsible for any pre-disposal liabilities relating to a breach of environmental law or an environmental permit. A buyer can assume these liabilities contractually, although it is not possible to completely contract out of statutory duties.

Share sale. Liabilities incurred by the company pre-sale (or post-sale but relating to acts or omissions occurring pre-sale) remain with the company, although this position is commonly altered by contract.

Brazil

Asset/share sale. The acquirer is responsible for the asset, even if the environmental damage occurred before the deal. The costs of remediation are typically settled in terms of the sale contract.

Asset/share sale. The polluter has a duty to repair environmental damage and to third parties regardless of the existence of guilt. It is enough that there is a causal link between damage and the polluting source to make the seller jointly responsible for the asset, even if the environmental damage is previous to the deal.

Canada

Asset sale. A buyer typically does not inherit pre-acquisition statutory liabilities, although a buyer may take over an ongoing situation of regulatory non-compliance and become liable.  As an owner of contaminated land, a buyer may be liable to be issued a remediation order even if the contamination was inherited.  A buyer of assets may in some circumstances inherit civil liability for pre-existing environmental conditions, especially in relation to contaminated land.

Share sale. A buyer inherits all environmental liabilities of sellers, including regulatory liabilities and civil liabilities.

Asset sale. A seller typically remains liable for pre-closing regulatory non-compliance.  Subject to the existence of a contractual indemnity, a seller typically retains civil liability for contaminated land post-closing.

Share sale. A seller does not typically retain any environmental liabilities, which are those of the corporate entity and not the selling shareholder(s).

China

Asset sale. Yes, on the transfer of: 

Share sale. If the buyer purchased 100% share from the seller, the buyer can inherit environmental responsibility caused by eliminated equipment and the contaminated land.

Asset sale. Yes, on the transfer of: 

Share sale. In the case of a share sale, if the transferor and transferee do not have a special agreement on the site's soil contamination problem, it is possible that the transferor will be held responsible for soil contamination damages and soil remediation when soil contamination accidents occur in the future.

France

Asset sale. An ICPE buyer will only inherit pre-acquisition environmental liability if he takes over as incumbent operator of the facility and the damage is linked to post-acquisition activities. However, in practice, the new operator's activities are often similar to those operated by the seller, and it is difficult for the new operator to escape historical liability. 

Share sale. In a share sale concerning a company operating an ICPE, no change of operator occurs. The company (and thus, its new parent company) retains its environmental liability towards administrative authorities and third parties.

Asset sale. An asset sale including an ICPE does not automatically entail a transfer of environmental liability. The seller remains subject to remediation obligations resulting exclusively from his activities.

Share sale. Since the operator does not change in a share sale including an ICPE, the seller does not retain environmental liability, but is liable for any contractual warranties related to environmental issues made to the buyer in the share purchase agreement. 

Germany

Asset sale. When acquiring assets, any pre-acquisition environmental liabilities associated with the assets generally remain with the seller. The important exception is liability for contamination as owner. Liabilities in asset acquisitions are often structured in the same way as in a share acquisition. Therefore, a buyer may contractually agree to assume the seller's pre-acquisition liabilities. 

Share sale. When acquiring a company's shares, the buyer also generally acquires any liabilities incurred by the target, as liabilities remain with the target post-acquisition. This is true irrespective of whether the liabilities:

Asset sale. The seller can remain liable after the sale. For example, if the seller caused contamination on a property that it is selling, it continues to be potentially liable under the contaminated land regime after the sale, even if the buyer agrees to bear the risk of contaminated land liabilities (when it is advisable for the seller to obtain an indemnity for this from the buyer). 

Share sale. Liabilities incurred by the target pre-sale (or post-sale but relating to acts or omissions pre-sale) remain with the target post-sale. The seller should, therefore, not be at risk of retaining any environmental liabilities post-sale. There is a small risk that if the seller had sufficiently direct involvement in the target's activities during the time he owned the target's shares, he could incur liabilities post-acquisition (that is, the corporate veil could be lifted, exposing shareholders to potential liability).

Guatemala 

Asset sale. This depends entirely on the type of asset being acquired. In general, all transfers of real estate or immovable property involve the transfer to the new owner of all liabilities arising from the land or building themselves. If the site is being used for an ongoing project, work, industry or activity with a valid environmental permit, it will depend on whether the new owner acquires the site itself or the business enterprise or company carrying out the permitted acts: in the first case, liability could remain with the enterprise or company carrying out the acts (who would, for example, only pay rent to the site owner); in the second case, the liability will be transferred to the new owner of the business enterprise or company (depending on the type of company and the nature of the sale, as explained below). In any case, both the (new) owner and tenant or occupier will be equally liable for damages to third parties or the environment, as explained before, but either their private contract, or the terms of the environmental permit, could indicate different rules which would apply only between the parties. 

Share sale. In Guatemala, Stock Corporations constitute legal entities separate from the owners of their respective shares. Therefore, the liable party is the entity itself as a distinct legal subject, and not the shareholders. Liability will affect the corporation or company and its respective assets, and not the shareholders as individuals (different liability rules apply to partners of non-stock legal entities). Therefore, the buyer does not technically inherit liability on a personal level, though it will obviously impact on the risk of their investment.

Asset sale. This depends on the type of asset and the legal nature of the transfer, as well as the terms of the contract and/or of the environmental permit. The parties could privately agree for the seller to retain liability after the asset sale, but this will not prevent the corresponding authority from taking action against the current owner. In such a case, the current owner would have to enforce the terms of the contract privately, such as seeking reimbursement from the seller.

Share sale. Share sales refer only to interest in a Stock Corporation, but the liability corresponds to the corporation itself as a legal entity.

Hong Kong

Asset sale. In an asset sale, liability for environmental damage is normally assumed by the buyer. Proving that the environmental liability arose before the transfer of an asset can be difficult, so it is recommended that the buyer obtains a contractual indemnity from the seller.

Share sale. In a share sale, environmental liability remains with the company, as the company remains responsible for the environmental damage, not the owner or shareholder.

Asset sale. A seller does not generally retain liability for environmental damage. This is normally passed on to the buyer, as it is difficult to prove that environmental damage occurred before the transfer of the asset.

Share sale. A company that has caused pollution remains directly liable for the environmental damage.

India

Asset sale. Yes.

Share sale. Yes.

Asset sale. More exceptionally (for example, in the case of a criminal conviction; or if contractually agreed)

Italy

Asset sale. For acquisitions of a going-concern, the purchaser becomes jointly and severally liable together with the seller for the environmental liabilities of the seller only in relation to the transferred assets.

Share sale. For share deals there is no change in the legal entity of the polluter and the seller remains fully liable for any environmental damages. Appropriate representations and warranties or indemnifications should be inserted in the share purchase agreement. 

Asset sale. Liabilities connected to environmental damages are personal and, therefore, cannot be transferred to the buyer. 

Share sale. Liabilities connected to environmental damages are personal and, therefore, cannot be transferred to the buyer. 

Nigeria

Asset sale. Unless the terms of the contract provides otherwise (that the seller remains liable for pre-acquisition environmental liability), pre-acquisition environmental liability transfers to the purchaser. 

Share sale. A shareholder who has purchased shares in a company with environmental liabilities is not personally liable for any environmental damage arising from the company's operations.

Asset sale. A seller retains environmental liability after an asset sale where the contract of sale so provides.

Share sale. The seller in a share sale retains environmental liability after a share sale, as a shareholder of a company is not liable for any environmental damage arising from the company’s operations.

Peru

Asset sale. Each person, or public or private entity, must assume the cost for the risks or damages it causes to the environment (cost internalisation principle).

Environmental responsibility can be transferred or the risks allocated through an agreement, although the effects of any the contract (containing, for example, representations and warranties, covenants and undertakings on past performance) are limited to the parties to the agreement. They are not suitable as a defence to administrative, criminal or third party civil claims. 

Environmental liabilities in connection with asset sales should therefore be analysed on a case-by-case basis.

Share sale. Ownership of shares in Peruvian entities usually limits the shareholder's exposure to environmental liabilities (that is, to the equity invested) for activities carried out by the company.  

Administrators (managers and directors) are responsible to the company, the shareholders and third parties, for incorrect management of a company that generated environmental damages (General Corporate Law (Law 26887)).

Asset sale. In an asset sale, the seller (polluter) is liable for the environmental damage caused before the transfer, unless the responsibility is contractually transferred to the buyer (see Question 18). The issue should be analysed on a case-by-case basis, taking into account that there may be major evidence issues in future when determining which party actually caused the contamination.

Share sale. In a sale of shares, in principle the seller does not retain environmental liability (which in any case would have been protected by limited liability while it owned the shares), as responsibility remains with the company performing the activities. 

Portugal

Asset sale. If a buyer acquires an asset with environmental liability associated to it, the seller /operator responsible for the pollution or environmental damage will be liable for carrying out and paying the clean-up costs and for adopting the necessary measures to prevent further threats and damages to the environment.

However, if the pollution and contamination continues and also whenever extreme circumstances of pollution or contamination are at stake, there is the risk of authorities requesting the buyer to carry out the environmental investigation and clean up directly as the new owner of the land.

Share sale. Liabilities remain in the target company acquired by the buyer. 

However, as regards the environmental liability regime, directors and managers are jointly and severally liable with the company. 

According to the environmental misdemeanour regime, partners, directors and managers are jointly and severally liable with the company for the payment of fines and trial costs. 

Liability for representations and warranties may be inserted in the share purchase agreement clarifying these issues.

Asset sale. The seller remains liable for pollution or contamination he caused. If liability is limited contractually between the buyer and seller, this will not apply in relation to public authorities as they may demand the seller. 

Share sale. Liabilities remain in the target company sold by the seller. Therefore, the seller will not be at risk exception made to liabilities for payment of fines (including trial costs) applied until the sale.

If the seller was also a member of the management of the target he may jointly and severally liable for non-compliance of obligations under the environmental liability regime originated during the period of his mandate. 

 Russia

 Asset sale. No.

Share sale. Yes.

 Asset sale. Yes, if the losses/damage to the environment were caused by the seller.

Share sale. Yes, based on environmental representations and warranties in the sale and purchase contract.

South Africa

Asset sale. Yes. A buyer can be liable for the costs of preventing, remediating or mitigating pollution caused by the seller. This is despite any contractual indemnities and warranties. Further, any person who has benefited from a polluting activity is liable, including buyers.

Share sale. In certain circumstances. A company's environmental liability remains with the company. However, in certain cases, relevant authorities can claim for environmental harm from any person or entity that has benefited from the polluting activity, or for measures taken to prevent, mitigate or remediate harm.

Asset sale. Yes. A seller cannot contract out of any civil and criminal liability towards the state, nor the statutory duties imposed on an owner by NEMA. A seller remains liable for all pollution and environmental degradation that arose while they were landowner. 

Share sale. Yes. A seller in a share sale remains jointly and severally liable with the entity being sold for any environmental obligations arising from the polluting activities or substances under which they were exercising control. The regulator usually pursues the entity rather than the individuals.

Spain

Asset sale. When acquiring assets, any pre-acquisition liabilities associated with the assets generally remain with the seller. However, the buyer risks incurring secondary remediation liability if they continue the contaminating activity.

Share sale. In principle, when acquiring a company's shares, the buyer also acquires any liabilities as liabilities remain with the target.

Asset sale. A seller generally remains liable for any pre-disposal liabilities relating to a breach of environmental law or an environmental permit. This includes any contamination caused by the seller before the sale. Even though a buyer can agree to assume these liabilities contractually, the public authority enforcing the law can enforce against the seller. If so, the seller will be liable to the authority but will be able to bring an action against the buyer.

Share sale. Liabilities incurred before the sale will remain with the target. Therefore, the seller does not generally retain any environmental liabilities. There is a risk that the seller could incur joint and several liability with the target if, during its ownership of the target's shares, it had sufficient direct involvement in the target's activities so as to be held responsible for its actions (the corporate veil can sometimes be lifted in these circumstances).

Switzerland

Asset sale. Yes, if liabilities are tied to the facility or to the industrial site itself. 

Share sale. Environmental liabilities remain with the target company.

Asset sale. Yes, if the liabilities are tied to a specific conduct. 

Share sale. Yes, if the seller is polluter by behaviour and has contributed to the contamination together with the target company.

Turkey

Asset sale. Yes, a buyer can inherit pre-acquisition environmental liability.

Share sale. Yes, a buyer can inherit pre-acquisition environmental liability.

Asset sale. Retaining of environmental liability depends on the agreement between the seller and the buyer. However, third parties can seek damages from both the seller and the buyer.

Share sale. Retaining of environmental liability depends on the agreement between the seller and the buyer. However, third parties can seek damages from both the seller and the buyer.

UK (England and Wales)

Asset sale. When acquiring assets, any pre-acquisition liabilities associated with the assets generally remain with the seller.

A buyer risks incurring liability for contaminated land in its own right under the contaminated land regime or under a civil law claim.

A buyer may agree contractually to assume the seller's pre-acquisition liabilities.

Share sale. When acquiring a company's shares, the buyer also generally acquires any liabilities incurred by the target, as liabilities remain with the target after the sale. This is the case whether the liabilities:

Asset sale. A seller generally remains liable for any pre-disposal liabilities relating to a breach of environmental law or an environmental permit. This includes any contamination caused, or knowingly permitted, by the seller before the asset disposal. However, a buyer can agree to assume these liabilities contractually.

If certain criteria are met, the seller can claim the land was "sold with information" and seek to qualify for a liability exclusion test.

Share sale. Liabilities incurred by the target pre-sale (or post-sale but relating to acts or omissions occurring pre-sale) remain with the target. Therefore, the seller should not be at risk of retaining any environmental liabilities post-sale. There is a small risk that the seller could incur liabilities post-sale if the seller, during its ownership of the target's shares, had sufficiently direct involvement in the target's activities (the corporate veil could be lifted, exposing the seller to potential liability as a shareholder).

UAE

Asset sale. No. 

Share sale. Yes.

Asset sale. Yes. 

Share sale. No.

United States

US law is not clear on these issues. As such it is difficult to represent the environmental liability scheme in a table format.