If you own a small business and you plan on selling it, it is important to determine whether you are covered by the Privacy Act 1988 (the Act). A small business solicitor will explain the circumstances under which the Act will apply, such as when you intend on selling certain assets that include the personal information of individuals. If you plan on selling the customer database as a business asset, you will be ‘trading in personal information’, which means that the regulations of the Act will apply to your business.

Requirements before selling a customer database

To lawfully sell a customer database, you must:

  • Have the consent of the individuals prior to the completion of the sale; or
  • The sale of the customer database is authorised/required by law.

Having said that, when you sell a business in its entirety, you are not necessarily ‘trading in personal information’. For example, if there will be a new owner, or shares will be sold, but the personal information will remain with the same business entity, the business may not be required to seek the consent of the individuals, despite having new shareholders. For clarification on exemptions from the Act, speak with your small business solicitor and consult the Australian Privacy Principles.

Exempt businesses and due diligence                                

The due diligence process will not change if the business is not covered by the Act.

If, however, during the sale process, certain assets containing personal information (like a customer database) are sold, both the buyer and seller may be required to comply with the Act once the sale has been finalised.

If you are buying a business and are unsure whether you are covered by the Act when you conduct due diligence, consult your small business solicitor before commencing the due diligence process.

Vendor compliance during due diligence

When a business is covered by the Act, the interested buyers and the vendor should consult their respective small business solicitor to ensure the personal information of individuals is being safeguarded.

Specifically, the Australian Privacy Principles (APPs) provide guidance on how to protect this personal information. Personal information may be disclosed if, and when, the individuals concerned would reasonably expect this disclosure because the reason for disclosing relates to the purpose of collecting the information. Ask your small business solicitor about the limits of disclosure during due diligence. For example, you do not need to disclose personal information that is unnecessary to assessing the business.

Vendors are typically allowed to disclose the following:

  • Partnership/Supply/Contractors Agreements;
  • Details regarding employment contracts of key employees;
  • Certain customer details;
  • Certain details about employee entitlements; and
  • Financial information.

It is the vendor’s responsibility to safeguard the personal information held by the business. Have your small business solicitor draft privacy provisions into all confidentiality agreements when dealing with potential buyers. Make sure these buyers do not make copies of the documents; they’re typically only entitled view them. Make sure your small business solicitor advises the potential buyers of their obligation to return or destroy the documents once the due diligence process has been completed.

Purchaser compliance during due diligence

As the potential purchaser of the business, you too have certain duties to protect the personal information of individuals when conducting due diligence. Your small business solicitor should advise you to remain compliant with the APPs when dealing with personal information. Your small business solicitor should also advise you of best practice with regards to collecting personal information, since only necessary information should be collected (copied or taken).

Conclusion

If you are considering selling or buying a small business and are not familiar with the requirements of the APPs, you should, first and foremost, seek the legal advice of a small business solicitor. A small business solicitor will not only provide guidance on lawfully conducting due diligence, they will assist in the entire sale process. For more information, contact LegalVision on 1300 544 755 and get a fixed-fee quote from one of our small business solicitors.

Lachlan McKnight

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