COBRA in M&A: Asset Sale

[Guest EMC]

In an asset sale, the Buyer expressly agrees to assume COBRA liabilities as of the closing date and will also be hiring all employees associated with the assets being sold ("Transferred Employees") on that date. The Buyer maintains no group health plan until a month AFTER the closing, and so the Transferred Employees have lost their group health coverage as of the closing date (until the date the Buyer begins to maintain the group helath coverage one month later). The Seller is selling off only one of its divisions in the asset sale and will continue to maintain a group health plan after the transaction. Therefore, the Buyer is not a "successor employer." What are the Seller's and the Buyer's obligations in this situation?

Thanks!

[Guest KGibson]

I found some information that may be helpful. It states: "In an asset sale, if the buyer is a "successor employer" it is responsible to offer and provide COBRA to the qualified beneficiaries. If the seller (or related seller in the seller's controlled group) maintains a group health plan after the asset sale, then the seller (or its affiliate) is responsible to offer and provide COBRA coverage to the qualified beneficiaries." It further states the contractual allocation of COBRA responsibility: In addition to the above rules, the proposed regulations permit buyers and sellers to negotiate and allocate COBRA responsibilities by agreement, subject to the following major caveat: If the parties agree to shift COBRA responsibility from the party that would be responsible under the above rules (usually the seller), but then the party assuming that COBRA responsibillity (usually the buyer) fails to do so, COBRA responsibility resumes for the first party that would have been responsible under the above rules. QB's then have COBRA rights against that party, and that party is left to pursue the defaulting party for breach of contract.

This is from a manual I have dated November 1999. There may have been changes to this, but at least it's a starting point.