The Real Estate Institute of NSW (REINSW) and the Law Society of NSW recently released a new version of the standard NSW Contract for the Sale of Business (the Contract). There have been a number of changes. Some are simply updates (e.g. changing references from the Trade Practices Act 1974 (Cth) to Competition and Consumer Act 2010 (Cth),) and removing references to Australian Workplace Agreements which are no longer valid. Others are more substantial and include new laws and regulations or to provide clarification/updates on existing clauses. Our sale of business lawyers combed through the two contracts and provided some commentary on the most notable changes below.
Including Provisions Relating to the Personal Property Securities Act 2009 (Cth) (PPSA)
One of the biggest changes is that the previous version of the Contract didn’t have any specific provisions regarding the PPSA (and understandably so – the PPSA didn’t even exist at the time!). Now clauses addressing the PPSA are expressly provided for in the Contract. Clause 35, summarised below, contains these provisions:
- The vendor is under an obligation to enable the purchaser to ascertain whether any part of the business or trading stock are registered security interests (note that the term used in the Contract and the PPSA is “perfected” security interest); and
- The vendor must release any such perfected security interests before completion.
Clause 35.4 provides that releasing these perfected security interests is a condition of completion.
It had already been the general practice among lawyers to include a special condition effectively mirroring Clause 35 before the new Contract was released. The new Contract, however, does provide clarification and a general standard that parties can agree upon when dealing with PPSA security interests.
Expressly Providing a Right of Termination to the Purchaser
The new Contract has added clause 15.2 that explicitly sets out when and how the purchaser may terminate the Contract. It also contains provisions as to what the outcome of any such termination will be. Specifically, clauses 15.2.1 – 15.2.3 provides that the purchaser will refund all money paid and can recover damages (subject to any adjustments where the purchaser is in possession of the business).
Under the previous Contract, the Purchaser always had the right to terminate the contract as a result of a vendor’s breach but the contract did not expressly include this term. Essentially, this meant that the vendor’s right to terminate could only arise under the law of contract, not under a specific provision of the Contract. Admittedly, the provisions of Clause 15.2 just sets out in words the existing rights that already arose under the law of contract. This clarification is helpful, nonetheless, and will assist in minimising confusion and more importantly, providing purchasers with a clearer understanding of their termination rights.
Dealing With Employees
The new Contract deals with employees in four different clauses (clauses 31-34) compared to one in the previous Contract (Clause 31). Simply put, the old Contract had a complicated and non-practical method which transferred employees under the sale. Most lawyers using that Contract replaced that provision with a simpler special condition that required the vendor terminate all employees and the purchaser rehire them at completion. The new Contract has, noting this general practice, adopted this “preferred” method regarding employees.
Selling a business can be a relatively complicated matter. By having a standard form contract, this helps the process along as both parties are aware of what to expect as part of the terms of the contract. The updates to the new Contract have generally helped in this regard by providing much-needed updates and by streamlining and providing clarification on existing clauses. If you need assistance selling your business, get in touch with our sale of business lawyers on 1300 544 755.