Slaughter, J.
In a typical asset purchase, the buyer acquires the seller’s assets but not its liabilities. The general rule is not absolute, however, and this case turns on two exceptions. The first exception arises when the acquisition of assets amounts to a de facto merger; the second, when the buyer is a mere continuation of the seller. If either exception applies, the buyer is on the hook for all the seller’s liabilities.
We hold that continuity of ownership between two companies is necessary for either exception to apply. Here, there are no overlapping owners; no equity holder of New Nello Operating Company owns any shares of Nello Corporation, or vice versa. Thus, neither exception applies, and New Nello Operating Company is not liable for Nello Corporation’s debt to CompressAir. Having previously granted transfer, we reverse the trial court’s judgment for CompressAir and remand with instructions to enter judgment for New Nello Operating Company.
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The trial court held New Nello liable to CompressAir for Old Nello’s debt based on the de-facto-merger exception. This exception applied, the court found, because New Nello and Old Nello shared the same name, business, location, employees, customers, products, and management team. What the two companies did not share, though, was the same ownership. In fact, the two companies have zero overlapping ownership: no shareholder of Old Nello owns an equity interest in either New Nello or its parent company. For purposes of the de-facto-merger exception, we hold, this difference makes all the difference—continuity of ownership is a required element of a de facto merger.
Today’s holding is consistent with our case law treating continuity of ownership as the touchstone of the de-facto-merger analysis…
What these cases imply, we now make explicit: continuity of ownership between transacting companies is essential to the de-facto-merger exception in Indiana….
Having concluded that continuity of ownership is necessary for the exception to apply, we leave for another day whether continuity of ownership alone is sufficient and how much overlapping ownership is required. Nor do we decide today whether the de-facto-merger exception would apply in situations like this one—a strict foreclosure—even were there continuity of ownership between lender and borrower. A statutory strict foreclosure differs from the typical de-facto-merger situation, which involves an asset-purchase agreement. Generally, an asset purchase transfers only the seller’s assets and whatever liabilities the buyer assumes; the buyer does not become liable for all claims against the seller. In contrast, a stock purchase transfers the assets and liabilities of the entire company. Here, though, the transaction was neither an asset nor a stock purchase but a strict foreclosure. New Nello did not buy Old Nello’s stock; it did not expressly assume all Old Nello’s liabilities; and it did not “buy” Old Nello’s assets. The transaction’s only resemblance to an asset purchase was the outcome—the transfer of assets from Old Nello to New Nello.
Admittedly, a transaction’s structure or label is not dispositive of its legal treatment….
Simply put, it is irrelevant to the de-facto-merger inquiry that the underlying asset transfer arose after a private-equity firm intervened (at the urging of junior lienholder Live Oak Capital), acquired Fifth Third’s interests, and then created the New Nello entities. As the trial court found, the transfer of assets to New Nello was not fraudulent. If Fifth Third had foreclosed on Old Nello’s assets, CompressAir would have received nothing as an unsecured creditor. CompressAir is no worse off with New Nello initiating the foreclosure instead of Fifth Third. It would seemingly subvert the rationale underlying the de-facto-merger exception to treat such foreclosures differently or to penalize New Nello for keeping the company afloat and its employees paid by deploying the assets for their most economically productive use.
Because CompressAir cannot show continuity of ownership between Old Nello and New Nello, the de-facto-merger exception does not apply.
The trial court also found that New Nello is liable to CompressAir because it is a “mere continuation” of Old Nello. This exception asks “whether the predecessor corporation should be deemed simply to have re-incarnated itself”. Cooper Indus., 899 N.E.2d at 1290. Unlike the de-factomerger exception, the mere-continuation exception considers not whether business operations continue from one entity to the next, but whether the initial entity itself continues. Sorenson v. Allied Prods. Corp., 706 N.E.2d 1097, 1100 (Ind. Ct. App. 1999). An entity is a mere continuation of another where the buyer and seller share “a common identity of stock, directors, and stockholders” and the transfer means the other company no longer exists. Id.; see Reed, 980 N.E.2d at 300.
Critically, because the mere-continuation exception applies only where there exists this “common identity” of equity holders, continuity of ownership is a necessary element…
Based on these authorities, we hold that New Nello is not a mere continuation of Old Nello for the same reason the de-facto-merger exception does not apply—namely, because none of Old Nello’s shareholders holds an equity interest in New Nello.
For these reasons, we hold that continuity of ownership is necessary for the de-facto-merger and mere-continuation exceptions to apply. Because there was no continuity of ownership between Old Nello and New Nello, we reverse the trial court’s entry of judgment for CompressAir and remand with instructions to enter judgment for New Nello.
Rush, C.J., and David, Massa, and Goff, JJ., concur.