Disney: "Royalties for creators? That's optional, right?"

[DGuller]

I guess my point is that it feels fundamentally wrong to me that two parties can enter into a transaction to benefit at the expense of the third party, who may not even be aware that a transaction is being negotiated that they will pay for.  The only time it makes sense is in the case of bankruptcy, but even then the creditors have a say in the proceedings instead of being quietly fleeced.  Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

[Sheilbh]

Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

With an APA, at least in the UK, it isn't that liabilities disappear, rather they stay with the seller.

Land is totally different here and there's no analogy between land law and anything else

[Malthus]

My guess is that you can transfer this sort of intellectual property rights by assignment in an asset purchase, and that both the party assigning the right, and the party to whom the right is assigned, will ultimately be liable for paying royalties (as in: the purchaser can only purchase with the requirement to pay royalties, but if they fail to do so, the seller remains ultimately liable). Though who knows, that's for M&A lawyers to fight over. 😄

[crazy canuck]

I guess my point is that it feels fundamentally wrong to me that two parties can enter into a transaction to benefit at the expense of the third party, who may not even be aware that a transaction is being negotiated that they will pay for.  The only time it makes sense is in the case of bankruptcy, but even then the creditors have a say in the proceedings instead of being quietly fleeced.  Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

Not sure what you are talking about.  The third party isn't losing or paying anything.

[The Minsky Moment]

Surely there have to be some protections against a transaction that transfers your house without transferring your mortgage?  You can't finance the acquisition with someone's else's receivables, can you?

Sure it's called a "mortgage"
The whole point of the mortgage is that it creates a lien and secured interest that attaches to the asset.  It can't be sold without discharging the mortgage assuming that that the lender takes the proper steps.

[The Minsky Moment]

I guess my point is that it feels fundamentally wrong to me that two parties can enter into a transaction to benefit at the expense of the third party, who may not even be aware that a transaction is being negotiated that they will pay for.  The only time it makes sense is in the case of bankruptcy, but even then the creditors have a say in the proceedings instead of being quietly fleeced.  Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

The assumption in the statement is that the transaction is "at the expense" of the third party.
Let's say you have B(uyer), S(eller), T(hird Party)

S has an income generating asset worth $1 million, S owes T an income stream liability arising out that asset with an NPV of $800,000
S sells the asset to B for $1 million.  S no longer has the asset but it does have $1 million in cash which is just as good.  The transaction is not at the expense of T because S still has the same means to pay the liability just in different form.

Ah but what if the cash is dividended away or transferred out in salary or other means?  Then it's off to bankruptcy land and preference claims and claims of fraudulent conveyance and the like.

[DGuller]

I guess my point is that it feels fundamentally wrong to me that two parties can enter into a transaction to benefit at the expense of the third party, who may not even be aware that a transaction is being negotiated that they will pay for.  The only time it makes sense is in the case of bankruptcy, but even then the creditors have a say in the proceedings instead of being quietly fleeced.  Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

Not sure what you are talking about.  The third party isn't losing or paying anything.

The first party is Publisher A.  Publisher A has an intellectual property, which it acquired with the help of Schmuck A (the third party), who in return is owed royalties.  Publisher B (the second party) buys out Publisher A.  Publisher B says to Schmuck A that it was Publisher A who owed them the royalties, an entity that doesn't exist anymore (because Publisher B bought it, but who cares?)  As a result of a business transaction between Publisher A and Publisher B, Shmuck A pays for it by losing his royalties.

[DGuller]

I guess my point is that it feels fundamentally wrong to me that two parties can enter into a transaction to benefit at the expense of the third party, who may not even be aware that a transaction is being negotiated that they will pay for.  The only time it makes sense is in the case of bankruptcy, but even then the creditors have a say in the proceedings instead of being quietly fleeced.  Acquiring company's assets without the attaching liabilities that were essentially payments for the asset feels like something you do in 1990ies Russia.

The assumption in the statement is that the transaction is "at the expense" of the third party.
Let's say you have B(uyer), S(eller), T(hird Party)

S has an income generating asset worth $1 million, S owes T an income stream liability arising out that asset with an NPV of $800,000
S sells the asset to B for $1 million.  S no longer has the asset but it does have $1 million in cash which is just as good.  The transaction is not at the expense of T because S still has the same means to pay the liability just in different form.

Ah but what if the cash is dividended away or transferred out in salary or other means?  Then it's off to bankruptcy land and preference claims and claims of fraudulent conveyance and the like.

The liability is not tied to S, though, is it?  It's tied to the company that S owned, which he sold in its entirety (except for all the liabilities, apparently).  S can't be liable for the liabilities of his LLC, either before or after it was wholly acquired and dissolved, right?  The royalties were tied to the corporation which magically disappears into ether, leaving behind its assets but not its liabilities.

[grumbler]

DDGuller, can a corporation just "magically disappears into ether, leaving behind its assets but not its liabilities" in your state?  Don't you guys have bankruptcy laws and the like?   The assets of S include the million dollars that S got from B, and if his corporation starts to spend that money T is going to force them into bankruptcy when S's assets go below what S owes T.  If S goes bankrupt T won't get the full $800,000, but the purpose of bankruptcy laws is to protect T's interests as much as possible.

[DGuller]

DDGuller, can a corporation just "magically disappears into ether, leaving behind its assets but not its liabilities" in your state?  Don't you guys have bankruptcy laws and the like?   The assets of S include the million dollars that S got from B, and if his corporation starts to spend that money T is going to force them into bankruptcy when S's assets go below what S owes T.  If S goes bankrupt T won't get the full $800,000, but the purpose of bankruptcy laws is to protect T's interests as much as possible.

S doesn't owe T anything.  The corporation Shell Co LLC owed T the royalties, S merely owned Shell Co LLC before he sold it to Disney.  It was Shell Co LLC that owed the royalties to T, may it rest in peace.  S doesn't have a corporation anymore, he sold it, he just has the money that Disney paid him for Shell Co LLC.

What I am describing does sound like bankruptcy, except without the part where the creditors take over the ownership of the assets.  That strikes me as extremely Wild West, so that's why I'm trying to clarify the legal situation.

[grumbler]

S doesn't owe T anything.  The corporation Shell Co LLC owed T the royalties, S merely owned Shell Co LLC before he sold it to Disney.  It was Shell Co LLC that owed the royalties to T, may it rest in peace.  S doesn't have a corporation anymore, he sold it, he just has the money that Disney paid him for Shell Co LLC.

What I am describing does sound like bankruptcy, except without the part where the creditors take over the ownership of the assets.  That strikes me as extremely Wild West, so that's why I'm trying to clarify the legal situation.

I'm not sure I understand how Shell Co LLC just "disappeared."  S sold it to B, so the debts it had went to B.  If S didn't sell Shell Co LLC to B, then it exists and received the million dollars that B paid for the asset T has an interest in.

Corporations, even LLCs, don't just "vanish."  They can be dissolved by the state where they were incorporated (usually at the request of the owners), but even that process requires that all creditors be satisfied, or else they can force bankruptcy proceedings.

[The Minsky Moment]

The liability is not tied to S, though, is it?  It's tied to the company that S owned, which he sold in its entirety (except for all the liabilities, apparently).  S can't be liable for the liabilities of his LLC, either before or after it was wholly acquired and dissolved, right?  The royalties were tied to the corporation which magically disappears into ether, leaving behind its assets but not its liabilities.

My example has only 3 parties - S, B, and T.  You just added a fourth party and imagined some connections between them. 

In my example, S is defined as the party owning the asset and owing the liability.  Doesn't matter if it is an entity or natural person because entities have personality under state law.

You are hypothesizing a different example where DG LLC - a single member LLC controlled by the human person DG - owes a liability and owns an asset, DG LLC sells the asset but DG the person takes the money.  That's a fraudulent conveyance and T can sue DG and claw the money back.

[DGuller]

Okay, let's get back to the actual entities in the article.  Disney acquired Lucasfilm.  Some writers were owed royalties by Lucasfilm.  Disney says "tough shit, the royalties were owed by a company called Lucasfilm, it's Disney now, Disney owes you bupkis".  The first question is, are the writers now fucked out of royalties which they used to get, and the only reason they will stop getting them is because one company was acquired by another?  If the answer to the first question is yes, then how is this different from my latest example, whether it involves three or four parties?

[The Brain]

Lucasfilm still exists, doesn't it?

[Duque de Bragança]

Lucasfilm still exists, doesn't it?

Unlike LucasArts, yes.