SEIA for M&A Due Diligence

M&A is an important part of business strategy but can expose a company to extensive trade compliance risk, as the acquiring company becomes legally liable for the historical non-compliance of the acquired company. Therefore, it is critical that companies have transparency as soon as possible to take advantage of disclosure periods, identify core gaps for harmonization of programs, and to implement resilient structures going forward.

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​Successor Liability

In the United States, both courts and federal agencies have consistently invoked successor liability concerning breaches of trade regulations in cases involving acquiring companies. Given the stringent nature of many trade regulatory frameworks, which impose strict liability and substantial penalties, successor liability poses considerable financial jeopardy for the acquiring entities.

 

As successor liability primarily centers on the actions of the target company, it remains a concern irrespective of whether the acquiring entity is based in the US or abroad.

 

 

Safe Harbor Policy

To qualify for the Safe Harbor, companies must disclose misconduct discovered at the acquired entity within six months from the date of closing. Companies will then have a baseline of one year from the date of closing to fully remediate the misconduct.

Acquiring companies that promptly and voluntarily disclose misconduct within the period, and cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement –will receive the presumption of a declination.

 

US courts have also applied successor liability in the import context. The Court of International Trade (CIT) has found an acquiring company liable for unpaid customs duties under the 'mere continuation' principle (i.e., where the purchaser is simply a continuation of the corporate entity of the seller, which is an exception to certain state law rules against corporate successor liability).