U.S. Customs Considerations in Corporate Mergers and Acquisitions

Posted on February 14, 2018

By Bruce Leeds, Senior Of Counsel, Braumiller Law Group

Let’s assume for example, that The Giant Corporation, an organization incorporated under the laws of the State of Delaware, is acquiring Acme Corporation, and you just happen to work on the Customs Compliance staff of  The Giant Corporation.  The following compliance staff meeting’s focus is on one main question: What are some Customs compliance tasks that may need to be done as a result of this acquisition?

The first thing that will be important is the status of Acme Corporation after the acquisition.  Will it be a separately incorporated subsidiary of The Giant Corporation, or will it be absorbed into one of the unincorporated divisions of The Giant Corporation and cease to exist as a separate company?  Based on all of this, here are some things that may need to be done:

  1. Customs bonds.  If Acme Corporation will remain a separately incorporated subsidiary and retain its name, it can continue to use its existing bond.  If it will be a separate subsidiary, but will have a new name and maybe a new address, it is likely the Acme will need to acquire a new bond.

If Acme will be a separately incorporated subsidiary can it be added to The Giant Corporation’s continuous entry bond?  It cannot be added to Section III of the bond (although this is sometimes done in real life) because only unincorporated divisions – not separately incorporated subsidiaries – can be listed in Section III.

Acme could become a co-principal on The Giant Corporation’s continuous entry bond; however, this is not recommended.  Bonds with co-principals are like unstable isotopes.  If either The Giant Corporation or Acme Corporation changes (divested, dissolved, etc.) the entire bond is no longer valid and a completely new bond must take its place.

If Acme Corporation is merged into one of The Giant Corporation’s unincorporated divisions and ceases to exist as a separate corporation Acme’s bond is no longer needed and can be terminated.  If it will have a unique division name and IRS number suffix, it can be listed in Section III of The Giant Corporation’s bond.  File a CBP Form 5106 to record the name and suffix.

  1. Powers of Attorney.  The entities can argue about what customs broker to use.  Once that is settled there may need to be changes to the powers of attorney.

If Acme will be a separately incorporated subsidiary of The Giant Corporation and will keep its existing broker, nothing needs to be done.  If it will be using the broker for The Giant Corporation, Acme Corporation will need to execute a new broker power of attorney.  Note that The Giant Corporation’s power of attorney will not cover a separately incorporated subsidiary because in the eyes of the law it is a separate company.

If Acme will be merged into The Giant Corporation and cease to exist as a separate corporation, its existing power of attorney is no longer needed.  There is no formal method in the Customs Regulations to terminate a power of attorney.  A suggested approach is that before the acquisition becomes final a corporate officer of Acme should sign a letter and send it to the customs broker advising that the power of attorney is terminated.

It is a prudent business practice to have a contract or purchase order with the customs broker.  Depending on what happens above, the contracts or purchase orders may need to be amended or terminated.

  1. Customs programs.  To keep from getting too complicated, let’s consider C-TPAT, Importer Self-Assessment (ISA), and ACE Portal.

If Acme will become a separately incorporated subsidiary of The Giant Corporation, it can continue its membership in C-TPAT, ISA and ACE Portal.  CBP should be notified of the change in ownership.  Acme should note this on its C-TPAT portal.  The annual report letter required for ISA will need to include a description of the acquisition by The Giant Corporation and impact that may have on its internal controls.

Of course, if The Giant Corporation participates in these programs, it can add Acme Corporation to its existing memberships.

If Acme will be merged into The Giant Corporation and be dissolved, it may actually get more complicated.  Acme’s memberships in C-TPAT and ISA would need to be terminated.  There would no longer be a need for its own ACE Portal – although Acme (or Giant) may want to keep that going for a while to continue getting reports on any clearances that may occur in its name.

If The Giant Corporation already belongs to C-TPAT, ISA, ACE Portal, or all three, and Acme will become an unincorporated division with its own IRS suffix, it can be added to The Giant Corporation’s programs.  If The Giant Corporation does not participate in any or all of these it may want to consider joining.  If the now former Acme Corporation was a participant in any, or all, of these, it may ease The Giant Corporation’s entry into these programs.

  1. Logistical considerations. After being acquired by The Giant Corporation, Acme will continue receiving import shipments.  If it will remain a separately incorporated subsidiary under the name of Acme Corporation, there will be minimal issues.  If Acme Corporation will be re-named, but remain a separately incorporated subsidiary, or if Acme will be merged into The Giant Corporation and cease to exist as a separate company, there may be a problem.  Shipments will continue to arrive addressed to Acme Corporation, but a company by that name will no longer exist.  How do you clear them?

There is nothing specific in the Customs Regulations to cover this situation.  A recommendation is that before the acquisition becomes final a corporate officer of Acme Corporation should execute a right to make an entry letter addressed to ocean carriers, airlines, breakbulk agents, etc. advising that (new name or The Giant Corporation) is authorized to make entry on shipments addressed to Acme Corporation.  It can go on to state that the documents should be turned over to (name of customs broker) for clearance.

Now – Isn’t this fun!  There are other things to do but this is plenty for now.