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Legal Guide

Share Transactions vs. asset transactions

Since it is not possible to contract out of regulatory liability, special environmental considerations apply in the context of corporate acquisitions. In a share transaction, both civil and regulatory liabilities of the corporation survive closing, and are transferred to the new owner. This includes the risk of prosecutions for past environmental violation (for example, a spill resulting in contamination), as well as any latent or known contamination.

In an asset transaction, on the other hand, liability of the corporation will not flow to the purchaser, unless tied to the specific asset(s) acquired. For example, if a purchaser acquires real property that was contaminated prior to closing, the purchaser remains liable for possible future remediation orders. However, the purchaser would not be exposed to the possibility of prosecution with respect to the actual spill that caused the prior contamination.

Shareholder liability

Generally, shareholders in Canada are shielded from liability, unless they actively participated in management or had charge, management or control of a contaminant, in which case they can attract liability in the same way as directors and officers. Canadian courts will, however, “pierce the corporate veil” of a company, and hold shareholders liable where the company is merely a sham or is being used for fraudulent purposes. Generally speaking, a corporate parent may be sued in its national courts (subject to local law) for pollution caused by a Canadian subsidiary/affiliate.

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