M&A statutes of limitations: Delaware moves to vanquish a legal relic

By Ed Batts

In a world of continuous innovation, it is an understatement that to varying degrees the law lags behind the times. But even measured by the glacial pace of judicial and statutory change, the notion of a corporate ‘seal’ — the physical symbol of a corporate ‘person’, evoking images of dripping wax and flickering candles in a bygone colonial setting — is dated.

The importance of the corporate seal has been the rage recently with Delaware decisions, among them the November 2013 holding in ENI Holdings LLC v KBR Group Holdings LLC, that have decreed Delaware’s normal statute of limitation was… an actual statute of limitations.

The Delaware statute of limitations for contract-type claims is either three years (general contracts) or four years (UCC claims). Yet the statute of limitations for the Internal Revenue Service (IRS) to assert tax recovery claims on things such as payroll taxes or ERISA claims well exceeds these Delaware periods. Accordingly, a buyer could be left in the position of being liable to the IRS for successor tax liability from the purchase of a target, say five years post closing, but be unable to recover in turn from a seller since the statute of limitations would have expired…

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