Environmental liability comparative table

This table summarises the rules relating to inheriting or retaining environmental liability on an asset or share sale in various jurisdictions.

Click on each jurisdiction to check the law stated date.

This table is part of the global guide to environment law. For a full list of jurisdictional Q&As visit www.practicallaw.com/environment-guide.

Practical Law Global

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 ( www.practicallaw.com/1-502-8908)

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.

Belgium ( www.practicallaw.com/2-503-5135)

Asset sale. Yes.

Share sale. Yes.

Asset sale. Yes.

Share sale. Yes.

Canada ( www.practicallaw.com/2-503-2764)

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).

Chile ( www.practicallaw.com/1-503-4725)

Asset sale. Yes.

Share sale. Yes.

Asset sale. Yes.

Share sale. Yes.

China ( www.practicallaw.com/3-503-4201)

Asset sale. Yes, on the transfer of:

  • Eliminated technology, equipment and products.

  • Contaminated land.

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:

  • Eliminated technology, equipment and products.

  • Contaminated land.

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.

Czech Republic

Asset sale. No.

Asset sale. Yes.

Share sale. A buyer itself cannot, but the environmental liability remains with the company whose shares have been bought.

Share sale. No, unless the contracting parties agree otherwise.

France ( www.practicallaw.com/7-503-4572)

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 ( www.practicallaw.com/4-503-0486)

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:

  • Existed pre-acquisition.

  • Arose post-acquisition but relate to the acts or omissions or circumstances pre-acquisition.

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).

Ireland ( www.practicallaw.com/4-503-2701)

Asset sale. Buyers inherit pre-acquisition environmental liability in an asset sale if the asset acquired is breaching environmental obligations whether due to contamination or otherwise. In such a case, the buyer becomes the legal owner or occupier of the asset and assumes all liability attaching to the asset.

Share sale. A share sale involves the buyer taking ownership of the target company and taking over all of the assets and liabilities. Buyers are liable for all current and historic environmental liabilities and subject to enforcement risk even if they were not involved with the company at the time of the breach of environmental obligations.

Asset sale. Sellers retain environmental liability in an asset sale in circumstances where it can be demonstrated that they caused or permitted the environmental pollution before the sale. A seller will not be responsible for environmental liabilities caused after the asset sale. Due diligence carried out at the time of sale will identify any existing environmental liabilities at the time.

Share sale. Sellers do not generally retain environmental liability in a share sale as the target company is sold as a whole with the buyer assuming all the associated assets and liabilities. The contract may contain provisions such as indemnities or warranties in favour of the buyer, which may allocate the cost of remedying any pre-sale environmental liabilities to the seller.

Italy ( www.practicallaw.com/1-503-2608)

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.

Japan ( www.practicallaw.com/6-502-8920)

Asset sale. As a landowner, a buyer can be liable under the SCCL.

Share sale. As the target company does not change after the share sale, the company (buyer) will be liable.

Asset sale. When a seller caused pre-sale contamination, a seller retains its liability under the SCCL.

Share sale. If a seller committed a tort through the target that caused the contamination, the seller can be liable.

Mexico ( www.practicallaw.com/7-508-8956)

Asset sale. The buyer can inherit environmental liability on a purchase of real property if he both:

  • Takes title to or possession of the land.

  • Cannot prove to SEMARNAT that the seller assumed liability for pre-existing contamination on transfer.

Share sale. By acquiring an equity interest in the target, the buyer acquires an indirect, proportionate share of the target's liabilities. Liability is limited to the buyer's equity contribution to the target.

Asset sale. Contractually, the seller can agree to retain environmental liability. Legally, the seller retains liability for any contamination it may have caused or for transferring a contaminated site without the prior approval of SEMARNAT.

Share sale. Retention of environmental liability by the seller typically only happens contractually. The party liable for any past contaminating activities or for ownership or possession of a contaminated site is typically the entity being sold (the target).

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.

Poland ( www.practicallaw.com/9-376-3181)

Asset sale. In the sale of a business or its organised part, the buyer bears joint and several liability with the seller. In the sale of single assets or collections of them that do not fall under the definition of a business or its organised part, the buyer may inherit some specific obligations of the seller (for example, the sale of land contaminated before 30 April 2007).

Share sale. In a share sale transaction there is no change in the structure of the company's material obligations.

Asset sale. In the sale of a business or its organised part, the seller bears joint and several liability with the buyer for pre-sale liabilities. In a sale of single assets or collections of them that do not fall under the definition of a business or its organised part, the seller may be released from some obligations (for example, the sale of land contaminated before 30 April 2007).

Share sale. In a share sale transaction there is no change in the structure of the company's material obligations.

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.

Spain ( www.practicallaw.com/0-521-6274)

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 ( www.practicallaw.com/9-596-3045)

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.

The Netherlands

Asset sale. The buyer will in principle not inherit any pre-acquisition environmental liability (unless the parties agree to a different division of the liabilities in the asset purchase contract). However, if the acquired asset contains, for example, soil pollution or asbestos, the authorities may hold the buyer of the asset responsible for the decontamination thereof.

Share sale. The target company shall remain subject to its own environmental liabilities, which means that the buyer of the shares buys these liabilities as well.

Asset sale. The seller will in principle remain liable for any pre-acquisition environmental liability (unless the parties agree to a different division of the liabilities in the asset purchase contract). Specifically in relation to soil contamination in commercial and industrial zones (bedrijfsterreinen), sellers may retain liability to perform soil investigations and decontamination works after the transfer of the land.

Share sale. The target company shall remain subject to its own environmental liabilities. While sellers do therefore not retain liability after the shares in the target company have been transferred, the buyer may require warranties and indemnities to be included in the share purchase agreement. The seller may therefore be contractually bound to retain certain environmental liabilities.

UK (England and Wales) ( www.practicallaw.com/6-503-1654)

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:

  • Exist before the acquisition.

  • Arise after the acquisition but relate to acts, omissions or circumstances before the acquisition.

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).

United States ( www.practicallaw.com/0-503-4622)

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

 
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