(03) 9720 2922

Jansen Walsh and Grace


We provide advice if you are purchasing a business or we can assist you if you are selling your business.  Buying or selling a business may include:

  • understanding of business structures including partnerships, companies, discretionary trusts, unit trusts
  • taxation law
  • leasing
  • employment law
  • restraints of trade
  • superannuation law
  • occupational health and safety law
  • franchising law
  • securities law, particularly the Personal Properties Securities Act.

Section 52 Disclosure Statement
If  sale price does not exceed $450,000, the legislation requires that the vendor to give a Disclosure Statement to the purchaser.  The Estate Agents (General, Accounts and Audit) Regulations 2018 came into effect on 20 May 2018.  They increase the threshold for the section 52 statement for a small business from $350,000 to $450,000.  This is similar in many ways to the Vendor Statement when you are selling your property.  The vendor must give it before the purchaser pays the deposit or signs the Contract of Sale of Business.

"What happens if I do not provide the Disclosure Statement?"

If you fail to provide the Disclosure Statement, the purchaser may, before taking possession, avoid the Contract of Sale of Business.  Failure to provide it will also be relevant in any proceeding against you in VCAT by the purchaser.




"Who usually completes it?"
Since completion of the Disclosure Statement is quite onerous, the trading statement which fills the last pages must be completed by a qualified accountant: see regulation 7 of the Estate Agents (General, Accounts and Audit) Regulations 2008.




Purchasing a business is often the most intimidating process most of our clients undertake.  Recognising this, we try to make the process as simple and clear as possible for all you in order that the transaction can be completed with minimum stress.  At the same time, we encourage you to take an active role in the process, as this ensures that you stay informed about what is happening and minimises the possibility for communication breakdowns.

The purpose of this information is to provide you with an outline of what is involved in the process, as well as to make some recommendations for what you can do to ensure the process is as smooth as possible.



Contract

The Contract of Sale of Business sets out the obligations of both parties and we will explain those obligations to you.  When contracts are exchanged — that is when we swap the contract signed by you for the contract signed by the vendors and pay the deposit — there is a binding agreement and neither party can change their mind.



Loan

If you are borrowing money for the purchase, it is important that the loan has been approved.  Except in exceptional circumstances, contracts should not be exchanged until you receive written loan approval.



Financial statements and financial viability of the business

Before you pay the deposit, you should arrange for your accountant to carefully review the financial statements given to you by the vendor.  You should look to your accountant for advice on the financial viability of the business as we cannot make any comment in relation to financial matters.


Deposit

A deposit is payable on exchange of contracts.



Insurance

The risk of the business does not become yours until settlement, by which time you should have all insurances arranged.  Once we receive the lease we will be able to advise what insurances the property owner requires.  They normally are public risk for 20 million and plate glass insurance.



Restraint on competition from the Vendor
The Contract of Sale of Business will protect you from competition from the vendor.

Inspection of records 
You are usually entitled to inspect the accounting records.

Conditions and warranties
The Contract of Sale of Business will include promises by the vendor which are divided into separate conditions and warranties, the distinction depending on the circumstances of each sale, with the resultant right to damages for breach of warranty or damages and termination for breach of condition.  The promises are no more than one would expect to be made by a genuine vendor properly conducting the business.

However, as contracts are often not read carefully, you will need to check promises such as “the equipment is in proper working order” or “the vendor has complied with all requirements under legislation relating to the business”.



Promises in contract

The need to ensure that promises are within the contract arises from the restriction in the contract of your rights in relation to any promises not in the contract.  Nevertheless, the remedies under the Australian Consumer Law are not excluded by this provision in the contract.

Assets and equipment schedule
There should be a schedule attached to the Contract of Sale of Business.  You should check that these assets are correct.

Sometimes these assets are broken or damaged and you should check this.



Landlord

You must provide:
1.   a statement of your assets and liabilities showing your financial position;
2.   business references referring to your business experience —
for the landlord’s consideration to satisfy itself that you can pay rent and outgoings as they fall due during the term of the lease.
You must supply:
1. Information about your assets and liabilities.
2. Business references.
3. Character references.
4. Business plan.

The purpose of both documents is to persuade the landlord that you have the business skills and financial capacity to manage the business.  Some leases say that references should also be supplied.  That is under old legislation and unless the lease says otherwise, we recommend that you supply us with the balance sheets and statements of your work history.  

Conditions in the lease
The provisions in the Contract of Sale of Business relating to the lease of the premises in which the business is conducted can be summarised as follows.

The clause envisages either a transfer of the existing lease or a novation, meaning that you enter a new lease with the landlord.

The Retail Leases Act 2003 specifically deals with the process and consequences of a transfer of a retail lease.  Section 60 sets out circumstances that entitle a lessor to withhold consent to a transfer and section 61 sets out the procedure to be followed in seeking consent.  Responsibility for seeking consent rests with “the tenant” — that is, the vendors — and includes an obligation for the vendors to give a disclosure statement to you: Schedule 4 to the Retail Leases Regulations 2013.  The landlord has 28 days to respond to a request for consent.  Section 63 allows a landlord to include in a retail lease a prohibition against subleasing or licensing the premises, but not to prohibit transfer.  It does, however, allow a landlord to include in a retail lease a right to refuse consent to a transfer if the proposed new tenant intends to borrow against the lease.

In the absence of such a provision in the lease, it has been held that it is unreasonable for a landlord to refuse consent solely on the basis that a proposed new tenant intended to borrow against the lease.

Transfer of Lease
We will draft the Transfer of Lease.  

Costs on transfer of lease
Although retail landlords are generally prohibited from recovering costs from other parties, section 51(2) of Retail Leases Act 2003 specifically exempts the landlord’s costs in relation to a transfer and mortgagee’s consent thereto.  As it is the responsibility of “the tenant” to apply for such consent, the tenant (the vendor) is, between landlord and tenant, responsible for such costs.  The contract between the vendor and the purchaser could seek to pass that cost on to you, but usually that was not done.

Insurance
The risk of the business does not become the purchaser's until settlement, by which time the purchaser should have all insurances arranged.  Once we receive the lease we will be able to advise what insurances the landlord requires.  This is usually public risk for 20 million and plate glass insurance.

Transfer of permit
The Food Act 1984 requires that all businesses that sell, handle, prepare, package, store, serve, supply, or repackage food must be registered with their local council.  You should contact the Council.  You should check with the Council whether you require its consent to the transfer of the permit.  We attach the form.  The vendors must sign the form and deliver it to you at settlement.

Searches and inquiries
It is important that you speak to the Council about the existence of any restrictions in the planning permit or scheme which may affect your intended use.

Transfer of liquor licence
If your purchase includes a liquor licence, then the transfer of a liquor licence can be quite complex.  It must be said that the convolutions of this area are likely to be complex and lengthy.

Often it is unclear when the transfer of a liquor licence takes effect.  Recent amendments to the legislation which received the Royal Assent on 13 June 2018 provide that the transfer of a licence or BYO permit takes effect on the later date of when an application for the transfer of the licence or BYO permit is granted or when the proposed transferee gains the legal right to occupy the licensed premises.  This makes clear the day that a transfer of a licence or BYO permit takes effect, allowing a transferee to begin trading immediately upon the grant of the application for the transfer or on gaining the legal right to occupy the licensed premises.  If a transfer takes effect when the purchaser gains the legal right to occupy the premises under subsection 50B(b), the purchaser must notify the Commission within 24 hours in the prescribed form.

Vendors

For vendors, we provide two options:

1.   Contract of Sale of Business and, like many of our clients, you negotiate with the purchaser and the purchaser's lawyers.

2.   Contract of Sale of Business and we negotiate on your behalf with the purchaser's lawyers. 


Purchasers

For purchasers, we provide two options:

1.   Advice on Contract of Sale of Business and tax advice, we also draft the Transfer of Lease, and, like many of our clients, you negotiate with the vendor and the vendor's lawyers.

2.   Advice on Contract of Sale of Business and tax advice, we draft the Transfer of Lease, and we negotiate with the vendor's lawyers.