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Retention of merger and acquisition records and information
Information Management Journal, Apr 2000 by Montana, John C
The key to where liability resides after an asset purchase, acquisition, or merger is understanding the legal status of a corporation.
The past two decades have seen an enormous increase in merger and acquisition activities by commercial organizations. Many industries finance, banking, manufacturing, telecommunications, and others have seen extensive consolidation. Some mergers and acquisitions have resulted in conglomerates with activities in several spheres of commercial enterprise; others have produced multinational organizations with operations in many countries. The effect has been a dramatic shift in the face of business worldwide.
Information Management
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Issues
On many levels, consolidations pose enormous issues for the organizations involved; financial and personnel systems must be merged, and conflicts in everything from organizational cultures to motor pools must be resolved so that the new organization functions smoothly.
The merger of records and information is among these issues. A merger or takeover involving two large commercial organizations involves harmonizing large amounts of information. Effective integration and management of the combined information set is critical to the wellbeing of the surviving or new organization. Unfortunately, this issue is typically overlooked in negotiations, contracts, and other merger-related activities. Consequently, problems with the resulting information set are often the norm after completion of a merger or acquisition.
These problems have several causes. Often, the organization fails to realize that the information sets of the two entities must be merged, so there is a lack of planning and preparation for what is, under the best of circumstances, a formidable task. Staff reductions and reassignments are often by-products of merger activity. Information management personnel in an acquired organization may have already left, or if still employed, may face elimination of their jobs. They may have little incentive to ensure that the information in their charge is handed over to their successors in good order, or to effectively assist in its integration into the data set of the new organization.
The result is that the surviving organization often finds itself with large amounts of information - paper records, microforms, and digital information - in disastrously disorganized condition, inherited from the acquired entity. The holdings may be warehouses full of poorly organized boxes, crates of unsorted microfiche or non-indexed reels of computer tape. In addition, there may be a very substantial body of information related to the merger or acquisition itself, such as due diligence files, contract documentation, inventory lists, and much more.
This body of information and its management imposes substantial responsibilities on various parties, depending upon the circumstances of the consolidation. These different circumstances will be examined in order.
The Corporation
as a Legal Entity
The key to where liability resides after an asset purchase, acquisition, or merger is understanding the legal status of a corporation. A corporation is, legally, a kind of fictional "person," separate and distinct from the people who own shares or other ownership rights in it. It has its own rights and responsibilities and, in general, is treated by the law as if it were a real person.
Thus, a corporation may sue others in its own name; it may be sued in its own name; it is responsible for obeying laws; and it may be sanctioned for breaking them. It may own, buy, and sell property and enter into contracts and other legal obligations. Although the corporation's officers and employees may have legally mandated duties of their own, those duties are separate and distinct from those of the corporation.
This concept of a corporation as a kind of person delineates the scope of its legal liabilities. Just as a natural person cannot merely pass his or her legal responsibilities onto another person - such as performance under a contract or responsibility for a debt a corporation cannot do so either. In addition, if a corporation "dies," (e.g., is dissolved or absorbed), those duties may remain with it or may pass along to a successor.
Dissolution of a Corporation
When people die their legal responsibilities do not end. Rather, those persons, through their estate, remains responsible for payment of debts and other matters. If necessary, the estate, and thereby the deceased, may be sued or otherwise subject to legal process to enforce those obligations.
A similar situation holds true for corporations. After dissolution, a corporation may be sued for a period of several years (which varies according to the relevant statute of limitation, but is generally under six years). I Directors of the dissolved organiza- I tion also retain liability for their actions for a similar period and may be sued for their actions as directors during that period.
This ongoing liability extends to the organization's information assets for several reasons. Since the organization may still be sued, it has all the customary information needs and duties attendant upon that reality, such as the need to respond to discovery, the need to produce information to defend itself, and the like. In addition, since the organization retains ongoing legal viability for a period beyond its dissolution, it has a continuing duty to retain for a period of years the information it was formerly required to retain by law. In some cases, there are legal requirements that, upon dissolution, transfer some types of information to a government agency or other body for continued maintenance.
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