In the realm of business, a shareholders agreement serves as a crucial compass regulating the relationship between a company and its shareholders and the management of the company and its affairs.  Yet, the misconception lingers that this agreement is a mere formality, a quick-fill template. In truth, the creation of a valuable shareholders agreement demands meticulous deliberation and purposeful tailoring. While certain issues and themes may be ubiquitous, no two agreements are likely to address them all in the same way.

The nature of the issues to be dealt with in a shareholders agreement (and how they are addressed) will depend on factors such as:

• the purpose, size, and nature of the company and its business;
• the extent to which shareholders are to have the right to be represented on the board of the company, and to control or influence decisions with respect to its business; and
• whether particular shareholders (either personally, or while they hold a specified percentage of shares) have reserved or special rights, such as the right to veto particular decisions or to drive a sale of all of the shares or the business of the company.

As an example, in the case of a company which has 2 or 3 equal shareholders who work in the business, the following are likely to be paramount considerations in the drafting of a shareholders agreement:•

• the need to ensure that all shareholders have an equal say in the running of the company (eg, by each shareholder having the right to appoint their nominee as a director of the company);
• how any deadlocks in decision-making will be resolved;
• what is to happen when a shareholder wishes to sell their shares in the company; and
• how the death and/or total and permanent disablement of a shareholder (or their associated person) is to be handled.

By contrast, the key issues to be addressed in a shareholders’ agreement for a company that has a broader and more varied shareholder base will be different and potentially more complex.  Such a company may, for instance, have a founding shareholder or shareholders, shareholders who are professional investors (such as private equity and institutional investors), and/or employee shareholders, with different shareholdings.  The key issues for a shareholders agreement for this kind of company may include:

• shareholders’ rights to appoint nominees to the board of the company, which may be contingent on a shareholder holding a minimum percentage of shares;
• whether material decisions will require the approval of a specified majority of directors or shareholders;
• whether ‘tag along’ rights are to be conferred on shareholders.  Generally speaking, a ‘tag along’ right is triggered where a majority shareholder (or group of shareholders holding a specified majority of shares) receives a third party offer to buy their shares which they wish to accept.  The inclusion of ‘tag along’ rights in the shareholders agreement mean that the majority shareholder will only be able sell their shares to the third party if they arrange for the third party to make a similar offer to buy the shares held by all of the other shareholders;
• if ‘drag along’ obligations should be imposed on shareholders - where a majority shareholder wishes to accept a third party offer to buy their shares, drag along obligations can force other shareholders to also sell their shares to the third party, at the same price and on the same terms; and
• what type of exit mechanisms should be included – exit mechanisms typically allow a majority shareholder (or group of shareholders holding a specified majority) to require the company (and, where applicable, all shareholders) to undertake a sale of the company’s business or shares, or an initial public offering and listing of the shares on ASX or another securities exchange.

To prepare a relevant and workable shareholders agreement, it is necessary to consider the particular circumstances of the relevant company, its shareholders, and their needs.  For a company with a small shareholder base, the shareholders agreement may focus on fundamental rights and protections that apply to all shareholders equally. With a complex or large business, and/or shareholders with different holdings of shares and different interests, it becomes critical to identify and address the objectives of particular shareholders, their needs in terms of the degree of control they wish to have over the company, and the nature of any special or reserved rights they may require.  

In the course of drafting a shareholders agreement, there are likely to be negotiations between shareholders (particularly where there are majority and minority shareholders), so that a balance (or compromise) is reached. A lawyer who is experienced in drafting and negotiating shareholders agreements will be able to identify key issues relevant to the company in question, and should be able to propose options for addressing those issues in the agreement.

The specific provisions and issues to be addressed in a shareholders agreement will always depend on the unique circumstances and objectives of the company and its shareholders. All of this goes to show that the oft-repeated line that ‘a shareholders agreement is just a standard document’ is really just a myth.

If you need a shareholders agreement prepared for your company, or advice on one, please contact the Sierra Legal team.

Earn-out arrangements are commonly used in mergers and acquisitions to bridge gaps between buyer and seller valuations of a target business. Under an earn-out arrangement, a portion of the purchase price (usually calculated as a percentage of future earnings) is deferred and contingent on the business meeting certain predetermined performance targets.

The use of earn-out arrangements can benefit both buyers and sellers. The seller can potentially receive a higher purchase price if the business performs well in the future, while the buyer is provided with some protection against overpaying for a business that may not perform as expected. Earn-outs can, however, be complex and require careful negotiation and drafting to ensure the terms are clear and enforceable.

In this article, we look at the basics of earn-out arrangements,  their advantages and disadvantages, and our top tips for negotiating and documenting earn-out arrangements.

What are earn-out arrangements?

An earn-out is a contractual arrangement under which the buyer agrees to pay a portion of the purchase price for a business to the seller at a later date, if certain agreed-upon targets are met. Earn-outs typically take place over a period of one to three years and can be based on financial metrics (such as revenue, EBITDA, or net income) or other performance indicators (such as customer growth or product development).

Why use earn-out arrangements?

There are several reasons why buyers and sellers might choose to use earn-out arrangements in an M&A transaction:

Addressing valuation disagreements

In an uncertain economic environment, earn-out arrangements can help bridge the ‘valuation gap’ between the buyer and the seller regarding the value of the business. If the buyer and the seller have different expectations about the future growth potential of a business, the buyer may be hesitant to pay the full asking price upfront. By agreeing on future performance targets, the parties can set a baseline for what they expect the business to be worth and negotiate payment terms based on that expectation.

Mitigating risk

When a buyer acquires a business, their valuation of it will be based on certain assumptions about future earnings potential and growth prospects. These assumptions are derived from the information available at the time of the acquisition. There is inherent uncertainty associated with these projections, so the actual performance of the business may differ from what was originally expected.

Utilising an earn-out arrangement, the buyer can mitigate some of this risk by linking a portion of the purchase price to the future performance of the business.  If the business performs well after the acquisition, the buyer will be required to pay the earn-out to the seller.  However, if the business does not perform as expected, the buyer may not have to pay the earn-out or may only be required to pay a reduced amount. In this way, earn-outs enable the buyer and seller to share some of the risk associated with the acquisition.

Aligning incentives

Earn-out arrangements can also help align the incentives of the buyer and seller, as both parties have a shared interest in ensuring that the business performs well after completion of the acquisition. This can be particularly useful if the seller is to remain involved in the business post-acquisition, as they are incentivised to ensure the business continues to perform well.

Preserving cash flow

An earn-out arrangement can allow the buyer to preserve cash flow in the short term, as they need not pay the full purchase price upfront. This can be particularly useful if the buyer needs to invest in the business post-acquisition to drive growth or if they are already carrying a significant amount of debt.

What are the drawbacks of earn-out arrangements?

While earn-out arrangements can be a useful tool for structuring M&A transactions, there are also drawbacks to consider:

Complexity

Earn-out arrangements can be complex and time-consuming to negotiate, as they require detailed financial projections and agreement on metrics that will be used to measure performance. Issues may arise around the calculation of earn-out amounts, the timing of payment, and the parties’ obligations during the earn-out period. Additionally, tracking and verifying performance over the earn-out period can be challenging, which can lead to disputes between buyer and seller.

Uncertainty

The future performance of a business is inherently uncertain, which can make it difficult to agree on the financial targets for an earn-out arrangement. Additionally, external factors such as changes in the economy, industry, or regulatory environment can impact business performance. This can make it challenging to accurately predict future earnings.

Integration challenges

Earn-outs have the potential to create integration challenges for the buyer, especially if the seller remains involved in the business. This can lead to conflicts over decision-making. They can also cause misaligned incentives between the buyer and the seller. For example, the seller may prioritise short-term financial results at the expense of long-term growth to maximize their earn-out payment.

Risk of non-payment

Even if the business performs well, there is always a risk that the buyer will not make the earn-out payment. To mitigate this risk, sellers commonly seek a form of security in respect of the buyer’s obligation to pay a deferred earn-out payment.

Top tips for negotiating and documenting earn-out arrangements

Negotiating and documenting earn-out arrangements can be complex, and it’s important to approach the process carefully to ensure that the arrangement is fair, clear and legally enforceable. Here are some of our top tips for negotiating successful earn-out arrangements that benefit both parties:

1. Clearly define the metrics that will be used to measure performance, the timeframe for achieving the performance targets, and any other details relevant to the calculation of the earn-out payment. Determine whether payments will be based on revenue, profit, or other performance measures, and how will the payments be structured (i.e. payable in cash or equity, by lump sum or installments). Clearly define the circumstances under which the earn-out payment will be made.
2. Understand the risks associated with earn-out arrangements including potential changes to the market, industry, and regulatory environment. It may be necessary to account for these risks by, for example, setting floors or caps on payments.
3. Address integration issues including whether the seller will be involved in the business post-acquisition, and if so, how their continued involvement will impact the earn-out arrangement. Both parties should have a common understanding of how decision-making will be handled and the extent of the seller’s involvement in the business during the earn-out period. Any restrictions on the seller’s role that could impact the earn-out payment should be outlined.
4. Consider each party’s motivations and incentives for entering into the earn-out arrangement. This can assist in structuring the arrangement in a way that aligns with the priorities of both the buyer and the seller.
5. Prepare for contingencies – determine how the earn-out will be handled if, for example, the business is sold, or the seller leaves the business before the earn-out period is complete.
6. Outline a process for resolving any disputes that arise over the earn-out payment. This may include expert valuation, mediation, arbitration, or other dispute resolution mechanisms.
7. Be prepared to walk away if a suitable arrangement cannot be agreed – it may be better to avoid a transaction if the terms are not in your interests.
8. Finally, it’s important to seek professional advice from lawyers, accountants and other experts when negotiating and documenting an earn-out arrangement.  This can help ensure that the agreement is legally enforceable and takes into account all relevant legal and tax considerations.

Negotiating and documenting earn-out arrangements requires careful attention to detail and a thorough understanding of the legal and financial implications. By following these tips, both buyers and sellers can ensure their earn-out arrangements are comprehensive, transparent, and designed to achieve their objectives.

As of 1 July 2023, the Australian Government will introduce a new Register of Foreign Ownership of Australian Assets (Register).  

The Register will be administered by the Australian Tax Office (ATO) and will record foreign interests in a broad range of Australian land, entities, businesses, and assets. The primary purpose of the Register is to consolidate the existing reporting framework for foreign ownership of Australian assets into a single, comprehensive database. It will replace existing registers covering residential land, agricultural land, and water rights, and incorporate reporting obligations covering a wider range of transactions. Importantly, reporting requirements in relation to the Register may apply irrespective of whether Foreign Investment Review Board (FIRB) approval is required for a transaction.

Significant penalties may be imposed for failure to comply with reporting requirements.

When will notification be required?

From 1 July 2023, “foreign persons” (as defined in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA)) must make a notification via the ATO’s online portal within 30 days of a trigger for notification occurring.

What constitutes a trigger for notification differs depending on the type of asset(s) involved.

Businesses

Numerous notification triggers apply to the acquisition of interests in Australian businesses or entities by foreign persons, including where a foreign person takes an action that is:

1. a ‘significant action’ under section 40 or 41 of the FATA;
2. a ‘notifiable action’ under section 47 of the FATA involving the acquisition of a direct interest in an agribusiness or substantial interest in an Australian entity;
3. a ‘notifiable national security action’ under section 55B of the FATA; and
4. a ‘reviewable national security action’ under section 55D or 55E of the FATA.

If a foreign person acquires an interest in an Australian entity or business which was previously notified to the Register, it must also report any subsequent increase in its interest of 5% or more.

The notification requirements also apply to an Australian entity that becomes a foreign person, for example via acquisition. If this occurs, the Australian entity will need to report interests that would have required approval under the FATA if they had been acquired immediately after the Australian entity became a foreign person.

Land

Where Australian land is concerned, a foreign person must generally notify the ATO where they acquire (for example):

1. a freehold interest in any Australian land;
2. an interest as lessee in a lease giving rights to occupy Australian land if the term of the lease (including any extension or renewal) likely to exceed five years; or
3. an interest in a mining or production tenement, such as a mining lease.

The ATO must also be notified if:

1. a person holding any of the above interests in land becomes a foreign person; or  
2. the nature of the land changes, for example, from commercial to residential, and the foreign person ought reasonably to have been aware of the change.

Other

Reporting requirements also apply in respect of interests in exploration tenements and registrable water interests.

Key changes

The introduction of the Register will increase compliance obligations for foreign persons as it captures a broader set of transactions than those currently required to be reported. For instance, the Register will cover not only acquisitions and disposals, but changes occurring while an interest in the asset is held, such as changes in the nature of Australia land and changes to the quantum of the foreign person’s interest in a business or entity.

Currently, the acquisition of freehold or leasehold interests exceeding five years in commercial land does not require reporting unless FIRB approval is required and the relevant approval contains a reporting condition. Going forward, all acquisitions of interests of this type will need to be notified to the ATO for inclusion in the Register.

Australian entities will be required to report ownership of certain assets if they become foreign persons. An Australian entity can become a foreign person for the purposes of the FATA due to changes in its direct or indirect ownership. Tracing rules apply which mean companies incorporated in Australia can be classified as foreign persons under the FATA due to upstream interests.

More detail on reporting requirements is provided in amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).

Conclusion

The introduction of the Register marks a significant change in the reporting and compliance landscape for foreign investors in Australia. With increased obligations and potential penalties for non-compliance, foreign persons should familiarise themselves with the new requirements and seek appropriate advice to ensure they remain compliant in an evolving regulatory environment.

The law regulating foreign investment in Australia is complex, and the information provided here is intended for general informational purposes only. This article should not be relied upon as a substitute for obtaining specific advice tailored to your circumstances. If you are considering foreign investment in Australia, we recommend you seek professional advice that takes account of your specific situation.

Two years ago, Clark Rubber started harnessing the power of Arreis, our document automation software, to help them streamline and automate the preparation of their legal franchise documentation for new and renewing franchisees.

Today, their staff (even without legal training) can complete an online survey to generate an entire suite of franchise contracts in less than 15 minutes.  

Read CEO Anthony Grice’s article in the FCA Franchise Review about how automating the process has helped the Clark Rubber team reduce errors, ensure up-to-date documents, and save valuable time and resources (READ HERE).

The ability to do all this without the need for full time lawyers has been a real game-changer for Clark Rubber.

The risk to your business

There are multiple risks to your business, should a BEC attack occur, including:

• Financial loss – often BEC attacks trick people into making unauthorised financial transfers which can result in significant financial losses for the business.
• Reputational damage – a BEC attack can damage your business reputation, as customers and other stakeholders may question your information security.
• Legal liability – heavy penalties now apply for data breaches under the Privacy Act 1988 (Cth).
• Disruption to operations – personnel are forced to devote time and resources to resolving the issue and recovering from an attack.
• Loss of sensitive information – BEC attacks often involve the theft of sensitive information, such as confidential business data or personal information of employees and customers. The theft can severely affect the privacy and security of individuals and businesses.

Reducing the risk of a BEC attack

It is important that every business understands cyber risk and takes steps to mitigate it. This means being prepared, knowing how to respond, and understanding both your regulatory requirements (ie. notification requirements under privacy legislation) and your contractual requirements (ie. a notification requirement of a breach under your contracts with third parties).

Preventing BEC attacks requires a multi-layered approach that includes a combination of technical and non-technical measures.  Some key steps that organisations can take to reduce the risk of BEC include:

• Take a top-down approach – your company directors need to be aware of the risks of BEC and actively guide the business’ strategy around privacy and data security.
• Raise employee awareness – educate your employees on how to recognise, report and respond to, a BEC attack. Employees are the first line of defence against BEC scams so providing regular training on cybersecurity and phishing awareness, including how to spot phishing links, how to avoid clicking on unknown links or attachments and how to check for a domain and email mismatch and other red flags through ‘phish’ simulations is critical.
• Create a culture of compliance – ensure that privacy and data protection policies are in place (and updated regularly) and that employees are aware of and trained in such policies.  Make it easy for employees to report suspicious emails.
• Vendor management – verify the authenticity of all vendors and suppliers before making payments or providing sensitive information. It is important to establish alternative channels of communication to confirm requests (ie. phone call or in-person conversation), especially for large or unusual transactions.
• Payment verification - companies should establish clear policies and procedures for financial transactions, such as requiring multiple levels of approval and verification for EFTs or other financial transaction.
• Improve your email security – there are many options available such as multi-factor authentication, email filtering, email encryption and anti-phishing software.  Work with your IT team or engage a cyber security consultant to conduct a security audit to identify potential vulnerabilities and ensure that security measures work as intended. Ensure all software is kept up to date, including anti-virus software.
• Back up data regularly – ensure regular backups of critical data and store it in a secure location, such as an off-site server to minimise the impact of a BEC attack.
• Prepare an incident report plan - this assists security teams to quickly detect and analyse the breach, assess the impact and effectively remediate the threat.

By taking these steps, you can reduce the risk of falling victim to a BEC attack and minimise the impact of an attack once it occurs. It is important to remain vigilant and stay informed about the latest threats and trends in cybersecurity. Being proactive about information security is essential.  

If you would like to discuss BECs in greater detail, how to respond to an attack, compliance requirements or have your privacy and data protection policies reviewed or updated, get in touch with a member of our Sierra Legal team today.

Business email compromise (BEC) is a type of cybercrime that involves targeting companies and organisations of all sizes, from small startups to large corporations, through their email systems. BEC scams are increasingly common and can result in significant financial losses for businesses, as well as damage to their reputations.

In the most recent report published in November 2022 by the Australian Cyber Security Centre (ACSC), in the 2021-2022 financial year, the ACSC received over 76,000 cybercrime reports. This equates to one cyber incident report every seven minutes (or over 200 reports a day).  Given that reporting a cyber incident to the ACSC is voluntary, it is likely that the true number of cyber incidents in Australia is significantly higher than those reported.  In monetary terms, the ACCC’s Targeting Scams Report 2022, states that Australian businesses were scammed out of $277 million in “payment redirection” cons through BECs over the course of 2021.

Email remains the number one way to attack businesses, particularly with the increased demand for hybrid and remote working, making employees vulnerable.  It is therefore crucial to position yourself with the knowledge and skills that can help to prevent a BEC event from happening to your business.

What is BEC?

BEC is a type of cybercrime where the scammer gains access to an employee’s email account through a phishing attack or other means of hacking.  Once they have access, they can monitor the employee's email traffic and use this information to send fraudulent emails that appear to come from the company's executives or other high-level employees or from a law firm, bank, internet provider or other supplier used by the business.  These emails often request the recipient to transfer funds, change account details, or share sensitive information. They may also contain malware or other malicious code that can infect the recipient's computer or network.

How does a BEC attack work?

Scammers either gain unauthorised access to a legitimate email account from which they send an email, or they send it from an email address which looks like a legitimate email account, known to you or your employees, but which contains a small change (i.e. the email address is off by a letter or two or it might be the correct email address but via a different domain).  This is done in the hope that the email address mismatch is not noticed by the recipient.  

The email usually contains a request for urgent payment or sensitive information.  The attacker may also use social engineering techniques, such as pretexting, to convince the victim to comply with their request.

Once the victim has been duped into making a payment or providing sensitive information, the attacker may use this information to perpetrate further fraud or sell the data on the dark web. In some cases, the attacker may use the compromised email account to send additional fraudulent emails to other employees, spreading the attack throughout the organisation.

Types of BEC attacks

There are several types of BEC attacks, each with its own modus operandi. Some common types of BEC attacks include:

CEO Fraud: In this type of attack, the attacker impersonates the CEO or other high-ranking executive and sends an email requesting an urgent payment or transfer of funds.

Invoice Fraud: The attacker sends a fraudulent invoice, posing as a supplier or vendor, requesting payment for goods or services.

Lawyer Impersonation: The attacker poses as a lawyer or legal representative and requests confidential information or payment for legal fees.

Account Compromise: The attacker gains access to an employee's email account and uses it to send fraudulent emails to other employees or to request sensitive information.

Next Week

In next week’s blog post we will continue the discussion on BECs, including the potential risks that a BEC attack poses to your business and how to lower the risk of a BEC attack occurring.

As the world emerges from the pandemic, many businesses are pushing their staff to return to the office and resume pre-pandemic work routines.  Some businesses are taking a hard-line approach, mandating that employees return to the office full-time, while others are offering a more flexible approach with a mix of in-office and remote work options.

Return to office policies can vary depending on the organisation and the industry, but in our view, there are some common drivers:

• Some employers have concerns about productivity and collaboration when employees work remotely, and may feel that they can only ensure high performance by having their staff physically present in the office.
• Others are hesitant to fully embrace new remote work technologies and tools, either because of perceived cost or cultural barriers to change.  
• Some businesses might be motivated to have employees return to the office in order to justify the high cost of office space and ensure they are “getting their money’s worth”.
• For some employers, the office is seen as a critical part of their culture and way of doing business, and so returning to the office is seen as a necessary step to maintain that culture.

At Sierra Legal, we believe that people often do not fully appreciate the benefits of remote work, with many viewing it as a temporary solution that was only necessary during the pandemic.

Remote work can be a more superior working model for certain employees and roles, offering many benefits:

• One of the obvious benefits is increased flexibility, with employees able to work from home, a coffee shop or any other location that suits their needs, as long as they have access to the necessary resources and tools.  This allows them to balance work with other aspects of their lives, such as family responsibilities or personal interests, which in turn can lead to increased job satisfaction and better mental health.  
• Remote workers often report higher productivity due to reduced distractions and the ability to work in a comfortable environment.  
• Remote working allows both employers and employees to save money on expenses such as commuting, office space and meals.  
• By recruiting remote workers, employers are often able to tap into a wider pool of talent since location is no longer a barrier to employment.  
• Remote working can have important environmental benefits, as it reduces the need for commuting and decreases the carbon footprint associated with transportation to and from the workplace.  

Whether remote work is a superior working model will depend on the needs and preferences of both employers and employees, but it is clear that remote work can be a win-win situation for all parties -  not just the employer and employee, but also the employer’s clients, the employee’s family and friends, and the wider community.

At Sierra Legal, we have physical offices in Brisbane and Melbourne that we can access and use as required.  However, we are predominantly a remote working model, with our team of lawyers having worked remotely for over 13 years (way before remote work became a “thing”).  We have lawyers in Brisbane, Newcastle, Melbourne and even Cape Town, South Africa!  

Working remotely has its challenges, but we’ve learnt the following over the years in building a highly productive and supportive remote work environment:

1. Communication:  Effective communication is essential for any team, but it's even more important for remote teams.  They need to be able to communicate clearly and frequently, using a range of tools such as video conferencing, messaging apps, and project management software.  Regular online check-ins are critical to remote working success.  We conduct a daily online team meeting to discuss client work, provide feedback, discuss progress and address any concerns.  Regular check-ins build trust, maintain team cohesion, and foster a sense of community.
2. Trust:  Remote teams need to trust each other to get the work done.  This means setting clear expectations and deadlines, being reliable and accountable, and being transparent about progress and challenges.  We've come together as a team to define our goals and how we'll achieve them as a remote team.  We've set clear roles and expectations and identified individual needs and goals.  Clear expectations help your team to stay focused, motivated, and working towards the same goals.  In our view, if an employer does not trust some or all of its employees, remote working simply won’t work.
3. Collaboration:  Working remotely doesn't mean working in isolation.  Remote teams need to collaborate on projects, share ideas, and support each other.  This can be done through regular calls and online team meetings, mixed with the occasional catch up in person.  It’s essential to create a positive work environment that fosters collaboration and creativity, and as part of this, taking time to catch up and connect as colleagues and friends, rather than always talking about work matters.
4. Technology:  Having the right technology tools is critical for remote teams.  This includes things like project management software for managing tasks and client deadlines, document automation, video conferencing tools, instant messaging, voice recognition software, simultaneous online document editing, online research tools, and cloud-based storage for sharing files.  Having the latest technology enables our team to work together seamlessly.
5. Flexibility:  Remote teams often work across different time zones and have different schedules.  Being flexible and accommodating to individual needs can help ensure everyone stays productive and engaged.  Because working from home can blur the lines between work and personal life, we encourage our team to take breaks and time off to recharge and avoid burnout.  One of the main reasons we set up the remote working model was to ensure that, as busy lawyers, we could also be present parents, partners, and family members.  While unsociable hours are sometimes part of our job, having flexibility to pick up kids from school, work out at the gym, train for a marathon, or take time to clear our heads, helps to promote the team’s overall well-being.
6. Culture:  A strong team culture is important for any team, but it can be harder to build in a remote environment.  Creating opportunities for team members to socialize and get to know each other (even if this is done mostly online), can help build trust and foster a sense of community.  At Sierra Legal, our strong team culture is evidenced by the fact that in over 13 years since starting the business, only 5 of our lawyers have left us (all taking up in-house roles) and they all remain good friends of the firm.  
7. Infrastructure and support:  It is important to provide the right support and infrastructure for your team to succeed.  This includes providing the necessary equipment, training, resources and tools to enable your team to do their job effectively, as well as just giving regular and friendly support, guidance and encouragement to the team.
8. One in, all in:  In our view, the remote working model is unlikely to work well in an environment where some people in the team are working remotely, and others are insistent on the traditional “full-time in the office” arrangement.  One of Australia’s major banks recently mandated that its senior leaders were required to work at the office 5 days a week, but that its broader workforce could work flexibly with a minimum of 2 or 3 days a week in the office.  This type of arrangement could put additional pressure on those employees working from home, the clear message being that if they want to progress in the organisation, they need to work more in the office.
9. Having the right people:  Without stating the obvious, it’s important to have the right people in your team.  It’s essential to have employees who are self-motivated, disciplined and have good communication skills.  Remote workers need to be able to work independently without constant supervision and be able to manage their time effectively.

At Sierra Legal, we have successfully used a remote working model for over 13 years, making us experts in the field of remote work.  We understand the nuances and challenges of working remotely and have developed strategies and best practices to ensure that we are able to maintain the highest standards of productivity and quality.  With our extensive legal expertise and proven remote work experience, we are well-equipped to provide top-notch legal services to our clients, no matter where we are located.

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Case study – Sierra Legal advises the shareholders of Clemenger International Freight

Sierra Legal recently advised the shareholders of Clemenger International Freight on a merger transaction, in which Clemenger's long-term partner, SJ Group, became a major shareholder of Clemenger International Freight, and with the enlarged Clemenger/SJ Group business having approximately 350 staff spanning across 14 cities in Australia, China, Hong Kong and New Zealand.

How it began

When the Managing Director and major shareholder of Clemenger International Freight, Michael Clemenger, first contacted Sierra Legal a few years ago, he had never been through a merger or other form of M&A transaction in the past.  

Michael wanted to understand at an early stage what was involved and whether his business was ready for such a transaction.  He needed an experienced legal team that could help him understand and prepare for the process.

How we helped

After spending some time with Michael explaining the process involved in a merger transaction, we initiated a comprehensive “legal audit” of the Clemenger International Freight business.

This involved the following work on our part:

• providing Michael and his senior management team with a detailed legal audit questionnaire;
• collating and reviewing the responses and documents received in response to the questionnaire;
• asking a series of further questions based on those responses and documents; and
• preparing a detailed legal audit report – this report identified “gaps” in the business from a legal perspective and recommended an appropriate way forward to deal with each of those gaps and ensure that the business was otherwise ready for any merger or other transaction.

Following completion of the legal audit, Michael and his team spent some time working through and implementing the recommendations in the legal audit report.

A decision was then made in 2022 to proceed with the merger transaction with SJ Group, and the transaction successfully completed in late 2022.

Was it a success?

Clemenger’s merger with SJ Group was a great success, for both Michael and his fellow shareholder in the company.

The legal audit helped the business get its “backyard in order” before entering into the merger, as well as enabling the due diligence process as a prelude to the merger to be conducted smoothly and without any “surprises”.

Once the recommendations in our audit report were implemented and a decision was made to proceed with the merger, we worked closely with Clemenger’s appointed corporate adviser to ensure that the merger was documented in a way that protected the shareholders to the maximum extent reasonably possible.

What did the client think?

It was fantastic having Sierra Legal’s support throughout the whole journey that began with a comprehensive legal audit of our business a couple of years ago, and then finished with our recent successful merger with SJ Group.  I was always impressed with the high level of legal expertise and experience offered by the team at Sierra Legal, but with the important overlay of always taking a commercial and practical approach.  I also appreciated Sierra Legal’s reasonable and transparent pricing arrangements, and their willingness to work around the clock to meet deadlines and get the transaction completed.  

Michael Clemenger

Managing Director, Clemenger International Freight ¶

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What is greenwashing?

Greenwashing is a tactic used by companies to make their products or services appear more environmentally friendly than they actually are.  It involves making false or exaggerated claims about the environmental benefits of a product or service to appeal to environmentally conscious consumers.  The term "greenwashing" is derived from the word "whitewashing", which means to cover up or conceal something negative.

Greenwashing can take many forms, such as using vague or meaningless environmental buzzwords, including "green", "eco-friendly", or "sustainable", without providing any specific information on how the product or service is environmentally friendly.  It can also involve exaggerating the environmental benefits of a product or service or making claims that are difficult to verify.

Why is greenwashing a problem?

Greenwashing can mislead consumers into thinking that a product or service is better for the environment than it actually is, which can result in them making purchasing decisions based on false information and inadvertently supporting companies that engage in environmentally harmful practices.

Greenwashing can damage consumer trust in environmental claims and labels, making it more difficult for consumers to make informed decisions about the environmental impact of the products they buy.  This can ultimately harm the environment by reducing the effectiveness of sustainability initiatives and slowing progress towards a more sustainable future.

Greenwashing can also undermine the efforts of companies that are genuinely committed to sustainability and environmental protection.  By making false or exaggerated claims, companies that engage in greenwashing can make it more difficult for consumers to differentiate between genuine environmental leaders and those that are improperly trying to capitalize on the growing demand for environmentally friendly products and services.

How does the law deal with greenwashing?

Under the Australian Consumer Law (ACL), it is illegal for businesses to make false or misleading claims about the environmental benefits of their products or services.  This includes claims that a product is environmentally friendly, sustainable, or has a reduced impact on the environment, if these claims cannot be substantiated.  Greenwashing could be a breach of section 18 of the ACL (which prohibits engaging in misleading or deceptive conduct in trade or commerce) and section 29 (which prohibits a person from making false or misleading representations about goods or services).

The Australian Competition and Consumer Commission (ACCC) monitors compliance with the ACL and is looking to step up enforcement efforts, encouraging consumers and businesses to contact the ACCC to report any potentially misleading environmental or sustainability claims.

In late 2022, the ACCC undertook an internet "sweep" of a sample of businesses to assess their environmental claims.  Releasing its findings earlier this month, the ACCC found 57% of businesses surveyed made sustainability claims that raised greenwashing concerns.  The ACCC plans to undertake a more targeted analysis of the businesses involved, in addition to a number of active investigations already underway.

Increased penalties for breaches of the ACL came into effect late last year, with the new maximum financial penalties for businesses now being the greater of:

• $50,000,000;
• 3 times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
• if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

It’s not just the ACCC monitoring compliance and taking action.  The Australian Securities and Investments Commission (ASIC) can also take enforcement action against greenwashing activities and has made it one of its priorities for 2023.  Late last year, ASIC issued its first penalty for greenwashing, fining Australian company Tlou Energy Limited $53,000 for making false or misleading sustainability related statements on the ASX.

In February this year, ASIC launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

ASIC is seeking declarations and pecuniary penalties from the Court, together with injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website. It is also seeking orders from the Court, requiring Mercer to publicise any contraventions found by the Court.

What should businesses do?

Businesses should review any environmental or sustainability claims they have made in relation to their business to ensure:

• environmental and sustainability claims take account of the entire lifecycle of their product or service, or where claims relate to only part, specify this;
• claims are clear and specific, and vague language is avoided; and
• claims are accurate and can be substantiated.

The ACCC has a published guidelines for businesses on how to make accurate and substantiated environmental claims, which are available here. These guidelines provide information on how to avoid greenwashing and ensure that environmental claims are truthful, accurate and verifiable.

Now, more than ever, businesses need to tread carefully when making ESG claims.

Please contact the Sierra Legal Team if you require further information about this topic or assistance with your ESG obligations.

At Sierra Legal, we are experts in mergers and acquisitions and our team has extensive experience and knowledge in M&A transactions.

2022 was another busy year for us on M&A transactions.

A selection of the key M&A deals we worked on in 2022 are set out below:

We advised the shareholders of Clemenger International Freight on a merger transaction, as a result of which Clemenger's long-term partner, SJ Group, became a major shareholder of Clemenger International Freight, and with the enlarged Clemenger/SJ Group business having approximately 350 staff spanning across 14 cities in Australia, China, Hong Kong and New Zealand.

We advised the shareholders of Cosmos 21 (a leading systems integrator and software development house, focusing on mobile technology platforms) on the sale to Zenput, a US-based technology company which has subsequently been acquired by CrunchTiime.

We advised on the sale of Nimbus Technology (the operator of the Nimbus Portal Solutions online document management system) to MYOB.

We advised on the sale of Maple Plan (the operator of an NDIS plan management business) to NIB.

For more information on our M&A expertise, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

Significant reforms to Australia’s privacy laws took effect in late 2022, fast-tracked in response to a number of high-profile data breaches. The reforms substantially increase penalties for serious or repeated interferences with privacy and expand the enforcement powers of the Office of the Australian Information Commissioner (OAIC). The 2022 reforms are intended to ensure businesses take privacy obligations seriously, with more extensive reforms expected within the next 12 to 18 months.

Key reforms that took effect in late 2022 include:

1. Increased civil penalties for serious or repeated interferences with privacy

Penalties have been increased significantly for serious or repeated interferences with privacy. Penalties for individuals have been increased from $444,000 to $2.5 million. For bodies corporate, the previous penalty of $2.22 million has been increased to am amount not exceeding the greater of:

• $50 million;
• three times the value of the benefit obtained from the conduct constituting the serious or repeated interference with privacy, if the court can determine this value; or
• if the court cannot determine the value of the benefit, 30% of the body corporate's ‘adjusted turnover’ in the relevant period.

The definition of 'adjusted turnover' is similar to that introduced into the Australian Consumer Law and takes into account the sum of the values of all the supplies that the body corporate and any related body corporate have made or are likely to make during the period, with specified exceptions.

2. Improved enforcement and information sharing powers

The reforms provide the OAIC with enhanced enforcement and information sharing powers. The OAIC can now issue infringement notices for failures to provide information when required, with associated penalties and a criminal offence for systemic failures to provide information.

The OAIC can also:

• require information in relation to an actual or suspected eligible data breach;
• share information with other authorities to enable the OAIC or another authority to exercise its powers; and
• publicly disclose information if it is in the public interest to do so.

3. Expanded extraterritorial application

Overseas businesses are now bound to comply with the Privacy Act 1988 (Cth) if they “carry on business” in Australia. Previously such businesses were also required to collect or hold personal information in Australia before the Act would apply.  This second limb has now been removed.

Outlook for 2023

The 2022 legislative changes were just the start of the Australian’s Government’s planned reform of  privacy laws. The Attorney-General's Department released its Privacy Act Review Report (Report) in February 2023, which proposes expansive reforms to the Privacy Act. Containing 116 recommendations, proposed reforms are aimed at strengthening the protection of personal information and the control individuals have over their information.

Over time reforms are expected to shift the burden from individuals, who are currently required to safeguard their privacy, and place more responsibility on organisations who collect and use personal information to ensure that their practices are fair and reasonable.

Feedback is now being sought to inform the Government’s response to the Report. Submissions are due by 31 March.

Steps to take now

The regulatory and political focus on privacy means 2023 is an ideal time for businesses to review and reset privacy practices. Businesses should review their controls and policies relating to the collection, use, storage and de-identification of personal information in preparation for significant changes in Australia’s privacy regime.  

Businesses should take the time to:

• understand what data they hold;
• understand where their data is stored;  
• de-identify or destroy personal information that is no longer required;
• review privacy policies and procedures, together with retention policies; and
• ensure they are adequately prepared to respond to a cyber-attack or data breach, which includes having a well thought out incident response plan.

It is important to note that increased maximum penalties for serious or repeated privacy breaches and strengthened OAIC enforcement powers have already commenced.

Please contact the Sierra Legal Team if you require further information about the privacy changes or assistance with your privacy obligations.

Why I chose a career in the law?

I chose a career in law because I wanted to understand the documentation that facilitates economic activity in our society. Understanding this means I can contribute to economic growth by documenting the contractual relationships that allow economic activity to occur.

What unique perspectives do women bring to the law?

Women often bring a different approach to contractual negotiation, focusing more on relationship building and collaboration. This can be helpful in developing long term and profitable commercial relationships, especially in industries where negotiations can become confrontational.

Any female role models and why?

Elle Woods. Sure, she’s fictional, but she demonstrated that strength can be derived from traditionally feminine character traits and pursuits, not despite them.

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Why I chose a career in the law?  

I chose to study law because I thought it would be a good skill set to have, for whatever I career I chose in the future.  Becoming a practising lawyer was not something I had planned on, but after discovering that the law was able to combine problem solving, logic and writing I found I really enjoyed it.   I was also raised in a feminist household and attended an all-girls high school, growing up to believe I had every right to have a ‘seat at the table’ in whatever arena I was able to demonstrate the necessary skill.  I didn’t even imagine that my gender would be an issue in the workplace.  As a young lawyer, it came as quite a shock when I realised just how much of an issue it was!

What unique perspectives do women bring to the law?  

The law applies to all genders so it only makes sense that all genders should have a role in all aspect of the law.  Generally speaking of course, women have a different approach to problem solving and communication, and I’ve found that that approach can be invaluable around a negotiating table.  There’s more than one way to get a deal done, and often what is needed is a different perspective or a different method of delivering the information.

Any female role models and why?  

So many!  As the saying goes,  we stand on the shoulders of those that have come before us.  Millions of women from all walks of life have fought big and small battles that have ultimately allowed me to have this career. I thank them all.  And I recognise my obligation to those that come after me to do the same – to demand equality in all places it does not yet exist for women.

Why I chose a career in the law?

Becoming a lawyer was not my first choice as a career. I was a police officer in South Australia but when I moved to Victoria to live, due to my life partner getting a transfer with the Air Force, I had to give up my policing career.  In the mid-90s transferring as a police officer to another State was not allowed. I was required to start as a cadet again at the Police Academy in Victoria, which was crazy given that I was a senior member of the police force in South Australia.  My partner then decided that he wanted to study law whilst remaining in the Air Force, and he asked me if I was interested in sitting the university entrance exam for law with him.  I had nothing better to do at the time, so I decided to sit the exam and was successful. The rest is history!

What unique perspectives do women bring to the law?

I think women bring a unique perspective and value to the law because of their diverse experiences and backgrounds.  Historically, women have been underrepresented in the legal profession, which has resulted in a lack of female perspectives in the development and application of the law. However, as more women have entered the field of law, their voices and experiences have begun to shape legal policies and practices in meaningful ways.

I believe that women bring a unique style of leadership to the legal profession that emphasises collaboration, relationship-building, and consensus-building.  This can lead to more effective and sustainable legal policies and practices. Women also bring empathy and compassion to the law.  By this I mean that women are often socialised to be caregivers and nurturers, which can translate to a greater sense of empathy and compassion for others.  This can be especially valuable in legal contexts where clients may be facing difficult and emotionally charged situations.  

Finally, while resilience is an important attribute for all lawyers, women in the law often face unique challenges that require a particular kind of resilience. Studies show that women lawyers are more likely to experience gender bias, discrimination, and harassment in the workplace.  However, despite these challenges, many women in the law have demonstrated remarkable resilience. They have persevered in the face of adversity, overcome obstacles, and achieved great success in their careers.  It is important that as women in the law, we support and advocate for each other.

Any female role models and why?

I have a few but in relation to law, the late Ruth Bader Ginsburg tops my list.  She advocated for gender equality, broke barriers by becoming the second woman appointed to the US Supreme Court, paving the way for other women to follow in her footsteps and she was a strong leader, both on and off the bench.  Despite facing many obstacles throughout her career, Ginsburg persevered and continued to fight for what she believed in. She inspired women and girls to pursue their dreams through courage, hard work, humility, determination, and perseverance.

Undertaking due diligence is a crucial step in the process of acquiring a business. The due diligence process generally involves a detailed investigation to thoroughly assess the target business’ assets, capabilities, and financial performance, and identify potential problems or unexpected liabilities. It is a valuable risk management tool that allows the buyer to make informed decisions and avoid unpleasant surprises.

Due diligence allows the buyer to identify and mitigate potential risks and liabilities that could impact on the target business’s value or return on investment. It helps the buyer and seller establish a realistic valuation of the business, and assists the buyer to gain a comprehensive understanding of it. The results of due diligence inform the terms of the transaction, including price, warranties, and payment terms.

For a buyer undertaking due diligence, it is essential that the process be conducted thoroughly yet efficiently. Here are our top tips for conducting effective due diligence:

Tip 1: Negotiate an exclusivity period with the seller - an exclusivity period will ensure that the buyer can devote time and resources to undertaking due diligence without being concerned that the seller is, at the same time, trying to solicit other offers for the target business.

The majority of M&A deals have a buyer exclusivity period during which the seller agrees to discontinue marketing and stop actively looking for buyers. Also known as a “no shop” period, the seller agrees to deal exclusively with the buyer during this period, preventing the seller from soliciting, negotiating or entering into agreements with other buyers.

The due diligence process takes time. It is important the buyer allows sufficient time for thorough due diligence to be undertaken as part of the transaction timetable and that this is reflected in the exclusivity period.

Tip 2: Engage experienced advisers – a buyer should engage advisers (including lawyers, accountants and tax advisers) experienced in advising on M&A transactions to assist in conducting (and reporting on) due diligence on a target business.

Experienced advisors will know what issues to focus on (or look out for) during the due diligence process. They will assist the buyer in developing a comprehensive due diligence plan, conducting research required to uncover potential risks, and providing recommendations for dealing with due diligence findings.

Tip 3: Tailor the scope of due diligence - before obtaining detailed information from the seller, the buyer and its advisers (legal and financial) should tailor the scope of due diligence to fit the target business. The scope of the due diligence review will depend on factors such as the nature of the business, its size and value, the industry it operates in, and the risk appetite of the buyer. Materiality thresholds are often adopted to enable the buyer’s due diligence team to focus (and report) only on matters of sufficient materiality. This can improve the efficiency of the due diligence process and ensure relevant issues are not overlooked.

Tip 4: Obtain relevant and detailed information about the target company – it is standard practice to issue the seller with a due diligence questionnaire that has been customised for the specific nature of the transaction and target company’s business. The purpose of the due diligence questionnaire is to gather relevant information about the target business to assess its value and potential risks.

The seller should also be collating due diligence materials in an online data room. Materials in the data room typically include:

• financial information including financial statements such as the income statement, balance sheet, and cash flow statement, as well as tax returns and any other documentation required to provide a comprehensive picture of the target company’s financial performance;
• corporate governance and ownership materials such as constitution, shareholders agreement, share certificates, and member registers;
• legal contracts that are important to the business such as sale, supply, service, and distribution agreements, and leases;
• intellectual property records including details of patents, trademarks, copyrights, and other intellectual property the target company owns or has licensed;  
• information technology materials including details about the target company's technology infrastructure, such as software, hardware, and data storage;
• human resources information such as organisational charts, policies, and employment contracts;
• litigation or regulatory filings including information regarding any current or pending cases or investigations; and
• environmental information including any environmental assessments, permits, regulatory approvals or other documentation related to the company's environmental impact.

Tip 5: Conduct a detailed and targeted review - Once the seller has completed the questionnaire and uploaded documents to the data room, the buyer and its advisers will review these materials. Typically, a due diligence review is divided into several separate components, each conducted by the relevant experts:

• Legal due diligence: this includes a review of the corporate structure and records of the target company, material contracts, results of searches of registered intellectual property, business names, registrations of personal property securities and other securities, current proceedings, and transfers of employees and their entitlements;
• Commercial due diligence: this includes a review of real property/premises, plant and equipment, stock and inventory, systems and processes, employees, customers, products and services, suppliers, assets, insurance, market trends and issues;
• Financial due diligence: this includes a review of financial performance, financial position, maintainable earnings, debtors, creditors, work in progress, salaries and wages, superannuation, finance facilities, guarantees and bonds, pre-payments, tax returns, liabilities, notices, disputes, penalties; and
• Tax due diligence: this includes a review of tax returns, liabilities, notices, disputes, penalties, etc and the tax impact of the transaction (as structured) on the buyer.

Tip 6: Review and act on due diligence findings - once the buyer’s advisers have completed their review of the due diligence materials, they will report their findings in writing to the buyer. Reporting is often done on an “exceptions basis” only (unless the buyer requires otherwise).  This means due diligence reports will only mention issues with a value or impact over a certain materiality threshold. The reports will contain recommendations for managing the issues uncovered during the due diligence process that will inform the buyer’s actions.

Provided the buyer wishes to proceed with the transaction, the next step is to negotiate definitive transaction documents. Issues identified in due diligence and the corresponding recommendations of the buyer’s advisers will frequently translate into protections sought by the buyer in the transaction documents. These could include the completion of certain actions as conditions precedent to completion, pre or post-completion undertakings, warranties addressing specific or general areas of concern for the buyer, or indemnities to protect the buyer from specific risks.  

If you have any questions on buying a business, undertaking legal due diligence or would like assistance with conducting legal due diligence on a target business, please do not hesitate to get in touch with one of the Sierra Legal team.

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Buying a business can be a complex and challenging process. It's important to be aware of the legal issues involved to ensure the transaction is successful and legally sound.

Tip 1: Know what you are buying  

Most businesses are operated through company structures.  This means that a buyer of the business can buy:

• the shares held by the shareholders of the company; or
• the assets used by the company to operate the business. 

There are crucial differences between share purchases and asset purchases that it is imperative for buyers and sellers to understand.  

• Share purchase transaction: this involves the buyer purchasing shares in the company that operates the business.  When a buyer purchases all of the shares, they become the sole shareholder or owner of the company. Through the company, they own everything the company owns (such as plant and equipment, land and buildings, goodwill, intellectual property, and rights and benefits under customer contracts).  Importantly, the buyer is also “buying” the liabilities of the company (which are factored into the purchase price).  
• Asset purchase transaction: this involves buying all or only some of the assets used to operate the business.  Assets may include contracts, plant and equipment, land and buildings, goodwill, and intellectual property.  In an asset purchase transaction, the buyer may prefer to purchase just the assets used in the relevant business, leaving behind extraneous assets as well as debts or liabilities.   

There are advantages and disadvantages of buying assets versus shares and vice versa. Buying just assets can provide flexibility, allowing the buyer to choose the assets they want and avoid liabilities of the target business. On the other hand, buying shares is often a simpler because the buyer takes ownership of the business in one transaction.

The decision on whether to buy shares or assets does not have to be made straight away. A preferable approach may become clearer after undertaking due diligence on the target. There may also be tax reasons to prefer to purchase shares over assets or vice versa, and professional advice should always be sought in this regard from the outset.

Tip 2:  Negotiate an exclusivity period with the seller

The buyer should negotiate an exclusivity period during which it has the sole right to conduct due diligence on the target business.  The purpose of the exclusivity period is to prevent the seller from trying to solicit other offers or negotiate with other prospective buyers.  Also known as the “no shop” period, the seller agrees to exclusively deal with the buyer during this period.  

It is natural for buyers to want to protect their interest and improve the chances of a successful completion. They do not want to have to deal with late counter offers. Most buyers aren’t willing to spend time and resources if there is little certainty of closing the deal. Your lawyer can assist you with the appropriate documentation to ensure exclusivity during the due diligence period.  

Tip 3:  Understand your funding options

Before starting the acquisition process, a buyer should understand how it will fund the proposed acquisition (cash, debt finance, vendor finance, equity). There are many ways to acquire financing, but it is vital to plan the acquisition financing structure to fit the circumstances. The cost of the acquisition financing structure must be grounded in the cash-flow generating capacity of the target and the strength of its asset base.

If a buyer needs a loan to fund the acquisition, the lender may wish to take security over the shares or assets of the target business and review the buyer’s due diligence on the target business. Large volumes of debt are more appropriate for mature companies with steady cash flows. Businesses that compete in unstable markets, that want to grow fast and need large amounts of capital to do so are more likely to seek equity financing.

Tip 4:  Undertake your due diligence

Due diligence is essentially an investigation into (and an appraisal of) the target business. It is an opportunity to assess the value of its assets and liabilities as well as the businesses’ commercial potential. 

From a legal perspective, due diligence on a business acquisition includes things like:

• reviewing and cross-checking ownership records and corporate governance documents;  
• analysing material contracts for provisions that may be triggered by an acquisition or which are onerous in nature;  
• evaluating funding and borrowing arrangements, as well as any security granted over the assets of the business;  
• considering compliance with regulatory requirements such as environmental, health and safety, or industry-specific regulations;  
• assessing any litigation the business is subject to;  
• examining records of employees, their entitlements, and their employment contracts; and  
• conducting searches on any land or premises owned or occupied by the target business.

Beyond legal due diligence, a buyer will usually also conduct financial, commercial and possibly tax due diligence on the target company or business in conjunction with their financial advisors.  

The importance of due diligence should not be underestimated. This is because:

• a buyer should ensure that it knows what it is buying so that it can better manage the risks associated with the purchase;  
• it will assist the buyer to negotiate the terms of the purchase, for example, it may reveal certain risks in the target business which the buyer may want to protect against;  
• issues arising in due diligence can usually be dealt with in the transaction documents either as condition precedents or completion deliverables, or via warranties and indemnities; but  
• only the known issues and risks of a transaction can be managed to ensure an optimum outcome.  

The level of due diligence on the target business will depend on a number of factors including the value of the acquisition and the buyer’s experience in the relevant industry.  Please see our recent article for top tips when conducting due diligence (LINK).

Tip 5:  Understand what protections you may need in transaction documents as a result of due diligence findings  

If the buyer still wants to proceed with the purchase after conducting due diligence, the next step is to prepare, negotiate and enter into definitive transaction documents.  Sometimes a term sheet or heads of agreement is entered into first.  

Material issues arising from due diligence should be translated into protections sought by the buyer in the sale and purchase agreement and/or as adjustments to the purchase price.  Examples of buyer protections that are often included in a sale and purchase agreements include:

• having conditions precedent that must be satisfied before settlement or completion of the transaction;
• representations or warranties from the seller regarding the quality, condition, and title of the assets being sold;
• indemnification provisions that require the seller to compensate the buyer for any damages or losses resulting from breaches of the sale agreement or other contractual obligations; and  
• provisions that require part of the purchase price to be held back or retained until a specified action or result is achieved this could take the form of an earn out or escrow arrangement.  

If you have any questions on buying a business, undertaking legal due diligence, or would like assistance with conducting legal due diligence on a target business, please do not hesitate to get in touch with one of the Sierra Legal team.

What were you doing before Sierra Legal?

Working in corporate law for a top-tier law firm. Before I entered the law, I worked in banking as a business analyst and product manager. 

What do you do with your time when you aren’t advising on M&A deals and reviewing contracts?

I love escaping to the ocean, especially to scuba dive. When I’m not dealing with a transaction, you might find me underwater exploring a shipwreck or photographing marine life. Above water, I enjoy pilates and yoga as well as creative writing. 

What was your first job?

My first job was at the local supermarket. I used to work the checkout and also behind the deli counter. When it was quiet we would “face up” the shelves (bring the stock to the front). I was really good at facing up the tins of tuna!

What was the first thing you bought with your own money?

A portable TV. It was sort of like a Gameboy, but it had a tiny TV screen and a big arial you had to pull out. Reception wasn’t always the greatest, and the resolution was not so good either, but I thought it was pretty special. I didn’t actually end up actually using it much though due to the aforementioned reception and resolution issues. 

What was the last book you read?

“The Happiest Man on Earth” by Eddie Jaku - an amazing story of survival which emphasises the importance of kindness. 

Favourite place? 

Either the Great Blue Hole in Belize or Fish Rock Cave off the coast of South West Rocks in New South Wales. Fish Rock Cave is an ocean cave which runs 125 metres underwater through a rock in the ocean. Its inhabitants include grey nurse sharks, turtles, crayfish, and bull rays. 

Favourite food?

I will eat most things but favourites include sashimi, shellfish, Mexican, and, of course,  chocolate. 

Least favourite food?

I’m not very fussy but liquorice gets a firm “no” from me. 

Best advice you have received?

I’m still deciding on that. I like the approach taken by the Minimalists, for example the following minimal maxims: 

• The most effective way to declutter is to leave the junk at the store
• Our memories are not in our things; our memories are inside us
• The right thing to do is rarely the easy thing to do 

A buy/sell agreement is a contract, usually entered into between the shareholders of a company (and often the company itself) which provides for the sale and transfer of shares of a shareholder (outgoing shareholder) to the other shareholders (continuing shareholders) if a specified event (buy/sell trigger event) occurs in relation to the outgoing shareholder.

Buy/sell trigger events

The buy/sell trigger events will usually include the death of the outgoing shareholder, but may cover other circumstances, such as the outgoing shareholder becoming totally and permanently disabled, or suffering serious illness or trauma.  If the outgoing shareholder is a company instead of a person, the buy/sell trigger events should apply to a specified person associated with the outgoing shareholder.  That person will often be someone involved in the management of the company to which the buy/sell agreement relates.

Buy/sell insurance

The buy/sell agreement will typically provide for insurance policies to be taken out and maintained, which cover each shareholder (or the shareholder’s associated person) for the relevant buy/sell trigger events, and that the insurance proceeds are used to fund the purchase by the continuing shareholders of all of the outgoing shareholder’s shares in the company on the occurrence of a buy/sell trigger event.  Consequently, the outgoing shareholder will cease to be a shareholder in the company, and not have any further involvement in its management or affairs.

Advantages of a buy/sell agreement

The key advantages of a buy/sell agreement are:

• to provide for funds to be available to enable the outgoing shareholder to be bought out.  Often, a buy/sell trigger event will happen unexpectedly, so the continuing shareholders may not otherwise be able to raise the necessary funds without having to sell the company or its business (which, in any case, may not be easy to do within a short timeframe);
• to enable the outgoing shareholder (or outgoing shareholder’s estate or family) to access the value of the outgoing shareholder’s shares in the company after a buy/sell trigger event has occurred; and
• to allow the continuing shareholders to own and run the company after a buy/sell trigger event has occurred in relation to the outgoing shareholder, without interference from the outgoing shareholder’s estate or family (who may not have previously been involved in the company’s affairs), or from any third party who might (in the absence of a buy/sell agreement) buy the outgoing shareholder’s shares.

In short, not having a buy/sell agreement in place can lead to conflict among shareholders and potentially adversely impact the company and its business, due to lost time, unnecessary distractions, and potential litigation.  

Key questions when preparing a buy/sell agreement

The following are some key questions shareholders should ask themselves before deciding on the terms of a buy/sell agreement:

• What are buy/sell trigger events? The answer to this question is likely to depend on the ability to obtain insurance cover for each shareholder (or its associated person) for the relevant events, and the cost of that insurance cover.  For example, it may not be possible to obtain the same kind and level of cover for all shareholders (or shareholders’ respective associated persons), or the same kind and level of cover for all of them at a reasonable cost.
• How will the insurance policies be held?  There are a number of options, including each shareholder holding their own individual policy, each shareholder taking out policies covering the other shareholders (or their associated persons), or the company holding the policies.  Each of these options has advantages and disadvantages, and the approach taken will depend on the parties’ particular circumstances.
• What is the amount to be insured?  Ideally, the insured amount should be sufficient to cover the value of each shareholder’s shares, but the cost of such cover may be an issue.  Furthermore, the value of the company’s shares is likely to fluctuate over time, and therefore the agreement should provide for periodic valuations of the company’s shares and reviews and variations of insured amounts.
• What happens if the insurance proceeds are greater or less than the value of an outgoing shareholder’s shares?  If the insurance proceeds are insufficient to cover the outgoing shareholder’s shares, the agreement could provide that the loss represented by the shortfall is to be borne by the outgoing shareholder (or their successors), or that the continuing shareholders must fund the shortfall, perhaps over a period of time.  The entitlement to any excess insurance funds should also be addressed in the agreement.

Interplay with shareholders’ agreements

A buy/sell agreement is generally a stand-alone document, but if there is a shareholders’ agreement in place for the relevant company (or the shareholders intend to enter into a shareholders’ agreement), then it may be preferable to include buy/sell clauses in the shareholders’ agreement instead.  Otherwise, care will need to be taken to ensure that there is no conflict or inconsistency between the terms of the shareholders’ agreement and the buy/sell agreement.

Other business structures

Buy/sell agreements can also be used for business structures other than companies, such as unit trusts and partnerships.  Most of the above points will apply equally to all buy/sell agreements, regardless of the business structure being used.

Seek professional advice

Buy-sell agreements can be complex, and the requirements of each business are unique. It is therefore important to seek legal advice before deciding on the terms of a buy/sell agreement and entering into one.  There are also tax implications for a company and its shareholders associated with buy/sell agreements, and we therefore recommend that parties seek tax advice from their accountants or other tax advisers before implementing a buy/sell agreement.  In addition, obtaining advice from an insurance broker or consultant on the type and level of insurance cover available, and related premiums, is recommended.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

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Overview

Businesses commonly use standard form contracts to improve efficiencies and protect their legal interests.  

Under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth) (Unfair Contract Laws) certain terms in standard form contracts may be declared (by a court) to be void and unenforceable if they are ‘unfair’.  The Unfair Contract Laws are designed to protect consumers and certain small businesses.

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 was recently introduced to parliament to significantly amend the Unfair Contract Laws to:

• broaden the type of contracts that may be caught by the Unfair Contract Laws; and
• introduce significant civil penalties for contraventions.

It is proposed that the amendments will not come into force until 12 months after the Bill receives Royal Assent. This will enable businesses a ‘grace period’ to prepare and implement any changes required to their business practices.

What types of contracts do the Unfair Contract Laws apply to?

A ‘standard form’ contract is typically prepared by one party and offered on a ‘take it or leave it’ basis.

Broadly, the Unfair Contract Laws apply to standard form ‘consumer’ contracts and ‘small business’ contracts, noting that there are some particular types of contracts that are expressly excluded (e.g. constitutions).

‘Consumer’ contracts are generally contracts for the supply of goods or services or the sale or grant of an interest in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.

‘Small business’ contracts are generally contracts:

• that are for the supply of goods or services or the sale or grant of an interest in land;
• where at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis); and
• where the upfront price payable under the contract is no more than $300,000 (or $1 million if the contract is for more than 12 months.).

What are ‘unfair’ contract terms?

A contract term may be ‘unfair’ if it:

• causes a significant imbalance in the parties’ rights and obligations;
• is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
• causes financial or other detriment (such as delay) if it were relied on.

Only a court can decide whether a contract term is unfair.  In making its decision, a court must consider how transparent the term is, and will consider the overall rights and obligations of each party under the contract (as a whole).  

The Unfair Contract Laws do not apply to contract terms that:

• set out the price;
• define the product or service being supplied; or
• are required or permitted by another law.

How will things change if the Bill is passed?

Under proposed amendments (in summary):

• the proposal of, use of, application of, or reliance on unfair contract terms would be prohibited;
• many more contracts will be considered ‘small business contracts’; and
• significant civil penalties and other remedies could be imposed for contraventions.

The threshold for what is a ‘small business contract’ will be lowered to include contracts where one party to the contract has either fewer than 100 employees or an annual turnover below $10 million. In circumstances where the ASIC Act applies (i.e. in relation to financial products and services) there will be an additional requirement that the upfront price payable under the contract does not exceed $5 million.

Further, a contract may be considered a ‘standard form contract’ despite the opportunity for a party to negotiate minor changes to the contract or select a term from a range of options provided.

Under the existing Unfair Contract Laws, the key risk arising from using unfair contract terms is that a court may declare such terms to be void and unenforceable.  Under the proposed amendments, significant civil penalties could apply a contravention.  For a company, the maximum penalty for a contravention of the Unfair Contract Laws will be the greater of:

• $50 million;
• three times the value of the benefit the company obtained from the breach; and
• if the court is unable to determine the value of the benefit the company obtained, 30% of the company’s turnover during the breach period.

Do I need to do anything?

If the Bill is passed, businesses will need to move quickly to:

• identify and review their standard form contracts to ensure they do not contain unfair contract terms; and
• implement any necessary changes to their standard form contracts and business practices.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

Background

On 1 December 2019, changes were made to the ASX Listing Rules to require the person who is appointed to be responsible for communication with ASX in relation to listing rule matters (ASX Contact) to have completed an approved listing rule compliance course and attained a satisfactory pass mark in the examination for that course.

The implementation of these changes had been deferred to enable ASX to replace its learning management system.

This has been completed and the listing rule compliance course is now available and is free to access and complete, vis this LINK.

Effective date

On 5 April 2022, the ASX announced that the listing rule compliance course changes will come into effect from 1 July 2022.  

However, in order to assist listed entities to transition to the new compliance course regime, ASX has allowed a transition period running from 1 July 2022 to 30 September 2022.

Requirements during and after the transition period

The following requirements apply during and after the transition period:

1. Existing listed entities appointing a new ASX Contact

An ASX Contact appointed by an existing listed entity during the transition period must complete and pass the course and email a copy of their completion certificate to the listings adviser for their entity, by no later than 14 October 2022.

2. Entities that are listed (or re-listed) during the transition period

ASX Contacts who are appointed by an entity that is listed (or re-listed) during the transition period must complete and pass the course and email a copy of their completion certificate to the listings adviser for their entity, by no later than 14 October 2022.

3. After the transition period

On and from 1 October 2022:

• Any new nominated ASX Contact will need to complete and pass the course prior to their appointment; and
• The nominated ASX Contact of any entity that is to be listed (or re-listed) must complete and pass the course prior to that entity’s listing (or re-listing).

If the nominated ASX contact has already passed the course on behalf of a different listed entity they are not required to pass it again.

Existing ASX Contacts

The ASX Contact of an existing listed entity who was appointed before 1 July 2022 does not need to complete and pass the course in order to remain the ASX Contact for that entity.  However, if they are to be appointed as the ASX Contact for another listed entity after 1 July 2022, they must first complete and pass the course.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

From 24 March 2022, Australian businesses have been able to register a new “.au” category of domain name.  This means that instead of ending their domain name with .com.au or .net.au, a business can now register their equivalent domain name as a shorter .au name (for example, sierralegal.au).  

All names in the domain name registry prior to the launch of the new domain name category have been placed on priority hold, reserving them from being registered by the public as .au domain names for a six-month “Priority Application Period”.  This period allows Australian businesses with an existing domain name to register their .au equivalents.  

However, the Priority Application Period ends at 9.59am AEST on 21 September, which means Australian business need to apply for the exact match of their current domain name in the .au equivalent domain name before that date, otherwise it becomes available to the public on a first come, first served basis.  Further information on the Priority Allocation Process can be found at https://www.auda.org.au/au-domain-names/au-direct/priority-allocation-process.  

Whilst this is not a legal requirement, the Australian Cyber Security Centre has recommended that all Australian businesses with existing domain names register their .au equivalents before the Priority Application Period ends.  This is to prevent cybercriminals from having the opportunity to register your.au domain name in an attempt to cybersquat or impersonate your business and conduct fraudulent cyber activities.  

You can reserve your .au domain name by visiting an auDA accredited registrar (https://www.auda.org.au/accredited-registrars). Existing domain names will continue to operate as normal provided the registration details are kept up to date.  

If you need assistance registering your new domain name or have any questions regarding the process, you can contact one of the Sierra Legal team who will be happy to assist.

A restraint of trade (ROT) clause (otherwise known as a non-compete clause) can be used in a variety of situations and is often found in share sale or business sale agreements, employment agreements and contractor agreements.

While similar principles apply to ROTs regardless of the context, we focus here on ROTs in a business sale or share sale scenario.

What is the purpose of a restraint of trade?

An ROT is often used in a business or share sale agreement to protect the goodwill of the business (or the business of the company) acquired by the buyer. The ROT will generally prevent the business or share seller from opening and operating or having an interest in (whether directly or indirectly), a similar or competing business, and preclude the seller from enticing customers, suppliers or employees away from the business or company, for a specified period of time and within a defined geographical area.

Therefore, from the business or share buyer’s perspective, it is important that the ROT clause is properly drafted and will be legally enforceable.

Is a restraint of trade enforceable?

Whether a restraint of trade clause is enforceable depends on the particular facts and circumstances of each case.  A restraint will be invalid if it goes beyond what is reasonably necessary to protect the buyer’s interests.  The onus of proving to a court that an ROT is reasonable and valid, is on the buyer trying to enforce the restraint.  To do so, the buyer must show that:

• the buyer has a legitimate interest to protect;
• the restraint imposed was no more than reasonably necessary to protect that legitimate interest; and
• it is not against public policy or harmful to the public interest.

Legitimate interest

Protecting legitimate business interests with a ROT clause does not extend to simply preventing future competition. A legitimate interest might include:

• a commercial interest, such as confidential information, trade secrets or intellectual property knowledge which if leaked, would harm the business or the company; or
• the goodwill of a business, including customer and supplier connections.  Many of the cases that consider restraints in the context of a business or share purchase indicate that the buyer would usually have a legitimate interest in protecting the goodwill in the business (or the business of the company) it has bought.

Reasonableness of the restraint

A court will consider several factors in deciding on whether a restraint clause is reasonable, including:  

• the industry and nature of the business;
• the nature of the restricted activity;
• the length of the restraint (generally speaking, the longer the restraint period the less likely it will be considered reasonable);
• the geographical area to which the restraint applies (this should usually be limited to the location(s) in which the business or company operates); and
• whether the party that is the subject of the restraint (generally being the business or share seller) has received any consideration for agreeing to the restraint (typically, that would be the price the seller received for the business or shares).

Cascading clauses

Typically, a ‘cascading’ or ‘ladder’ approach is taken in drafting restraint clauses, providing for different levels of restraint so that the restricted activity, duration and geographical area is broken down from widest/longest to narrowest/shortest.  

Whilst the courts will not rewrite a restraint for the parties, by using ladder clauses that provide alternate restrained activities, time periods and geographical areas on a sliding scale, if a court were to determine that the maximum restraint was invalid, the clause might still be held by the court to be partially valid for a narrower range of activity, period and/or geographical area.  The court would essentially “read down” typically by severing one or more limbs of the restraint, so the remaining parts of the restraint (i.e. those judged to be reasonable) can continue to operate and bind the seller.

Summary

Restraints of trade are complex, and restraint clauses need to be worded carefully and appropriately for the circumstances for which they are being used.  The general principles to keep in mind when considering a restraint of trade clause is whether there is a legitimate interest to protect and if so, the restraint must do no more that is reasonably necessary to protect that interest.  ‘Reasonable’ in this context means reasonable in relation to each party and in relation to public policy and having regard to the extent, duration and geographical restrictions imposed.  

Need advice?

We are experienced in advising on and drafting ROT clauses in business and share sale agreements, as well as contractor and employment contracts.  Contact our team if you need advice on restraints of trade.

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Whether it be for internal restructuring purposes or to meet other commercial requirements such as in the context of a sale of business, many businesses face the issue of needing to transfer a contract from one entity to another.

Unfortunately, it’s not as simple as crossing out one party’s name and inserting another! Most contracts may be legally transferred by a party (the outgoing party) to another entity (the incoming party) in one of the following 2 ways:

• by assignment; or
• by novation.

Assignment

An assignment of contract involves the transfer of the rights (but not the obligations) of the outgoing party under the contract to the incoming party. An assignment does not require the consent or agreement of the other party to the contract (the continuing party), unless the terms of the contract expressly require it.

An assignment is usually effected by a deed signed by the outgoing party and the incoming party. If the continuing party’s consent to the assignment is required, then it is generally convenient to include the consent in the deed, and also have the continuing party sign the deed.

An assignment will not relieve the outgoing party of its ongoing obligations under the contract, at least as between the outgoing party and the continuing party. To give the outgoing party some protection against future breaches of contract by the incoming party, it is common, in an assignment deed, for the incoming party to:

• promise to the outgoing party to carry out the outgoing party’s contractual obligations after the assignment date; and
• indemnify the outgoing party against claims against it by the continuing party for any post-assignment failure by the incoming party to carry out those obligations.

Even if the continuing party’s consent to the assignment of another party’s rights under a contract is not needed, for the assignment to have legal effect, the continuing party must be given written notice of the assignment.

Novation

At law, a novation is actually the substitution of a new contract for an existing one, on the same terms as the existing one, but between the continuing party and the incoming party instead of being between the continuing party and the outgoing party.

In practice, however, a novation is usually effected by substituting the incoming party for the outgoing party, so that on and from the effective date of the novation, the incoming party acquires all of the rights and obligations of the outgoing party under the contract, and the outgoing party is relieved by the continuing party from any further obligations under the contract.

In any case, a novation always requires the agreement of the continuing party.

A novation is generally preferable to an assignment from the outgoing party’s perspective, because it results in a better position in terms of legal liability. However, a novation can be more difficult to achieve because the continuing party’s agreement must be secured.

Other methods

There are also indirect methods of transferring the rights and obligations under a contract. For example, if a party to a contract is a company, it may be possible to effect a transfer of its rights and obligations under the contract by the shareholders in the party transferring their shares in the company. That way, the company remains a party to the

contract (and no assignment or novation is needed), but a new shareholder obtains control of the company and thereby indirectly obtains the benefit of the rights, and the burden of the obligations, of the company under the contract.

Which option is best for me?

To determine whether assignment, novation or an indirect method is best for you, you should consider:

• The terms of the contract itself – does the contract prohibit, allow or place any conditions on any method of transfer?
• Your ultimate goal, including in relation to who should be responsible for liability arising under the contract before and after the transfer.
• The commercial position of each of the outgoing party, the continuing party and the incoming party – for example, how readily will the continuing party give its consent?

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

It’s important to be able to identify the other party to a contact you’re entering into.  That party will have obligations under the contract, such as supplying goods or services to you.  Also, you will have contractual commitments to the other party (for example, paying them for the goods or services they supply).  If there is a breach of contractual obligations, knowing whom to sue (and who can sue you), and being able to sue the right party, are fundamental points.

Tip 1 – Always contract with a legal entity

You should only enter into a contract with a legal entity (or ‘legal person’), being one that can, under the law, sue and be sued.

• Individuals and companies are legal entities.
• A trust is not a legal entity, but the trustee of the trust is.  Therefore, the contracting party should be the trustee (which may be a company or an individual).  The party could be named in a contract as “ABC Pty Ltd as trustee of the XYZ Trust”, or just “ABC Pty Ltd”.
• A partnership is not a legal entity separate from its partners.  Therefore, all the partners would be parties to the contract, but that may not be practical in the case of a large partnership.  However, as each partner is treated under the law as an agent of the partnership and the other partners for partnership business purposes, generally, any partner of a partnership could enter into the contract on behalf of the partnership.  Sometimes, a partnership will have a ‘nominee company’, which is a separate company owned or controlled by the partners and used to enter into contracts on behalf of the partnership (ie, the nominee company will sign the contract as agent, or as nominee or on behalf, of the partnership).

Tip 2 – Make sure you’re contracting with the right party

Aside from ensuring that the other party is a legal entity, you should also be satisfied that it is the party you intend to contract with.  Entering into a contract with the wrong party can have unintended and adverse consequences.  For instance, if an individual operates a business through a company, and you are a customer of the business, any contract with the business should be entered into by the company (as the supplier of goods or services), and not the associated individual (who may be a director or shareholder of the company). Contracting with the individual in that example could give rise to complications, such as if you needed to make a claim for defective goods or services supplied under the contract.

• Before finalising the contract, ask a representative of the business what the structure of the business is (ie, whether it is operated through a company, trust or other entity), so that you can correctly identify the party that needs to enter into a contract with you.
• Search the internet to help you to identify the correct party.  On-line ASIC company and business name searches, ABN searches using the Australian Business Register, domain name searches, and trade mark searches through IP Australia can all assist in revealing or verifying the legal entity with whom you are dealing.

Tip 3 – Check that the other party has authority to enter into a contract with you

Checking a party’s authority to enter into a contract will generally not be necessary where they are an individual or a company, but could be important when dealing with a trust or partnership, for example.  That is especially so in the case of a high value or high risk contract.

• If a company or individual is entering into a contract with you as trustee of a trust, you could ask for a copy of the trust deed to check that it gives them the power or authority to contract in that capacity (ie, as trustee).  That will be important if you wish to ensure that the assets of the trust will be available to meet the party’s contractual obligations (and any future contractual claims you may have against the party).
• To check that a person entering into a contract on behalf of a partnership has authority to bind all of the partners, it may be necessary to have the person provide evidence that they are a partner of the partnership (eg, a copy of the partnership deed, or a document under which they were appointed a partner).  Alternatively, you could ask to see a power of attorney or similar document signed by all of the partners authorising the person (or nominee company, if applicable) to enter into the contract (or contracts generally) on behalf of the partnership.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

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In our first 3 blogs “Proper preparation prevents poor performance”, “Get your backyard in order” and “Transaction documents” we set out our top 10 tips and traps for sellers to consider when they are proposing to sell their business.  Our final 2 tips concern completion and post-completion.

Tip 11 - Deal isn’t done until completion occurs

• Keep the pressure on after signing and use a “completion agenda”.  People often fall into the trap of thinking that the deal is done once a sale and purchase agreement is signed, but that is often not the case and a lot of work still needs to be done, such as satisfying conditions precedent and getting ready for completion.
• Don’t announce early, unless you have to as a matter of law (e.g. ASX listing rules) or other reasons (e.g. word gets out about the deal and clarification is necessary).  A seller can often lose bargaining power if news of the deal gets out.  In such circumstances the seller often can’t afford for the deal not to go through to completion and therefore may feel they need to waive conditions precedent or accept half-performed completion steps.
• Start the process early for the release of registrations on the Personal Property Security Register.  The buyer will likely require all PPSR registrations to be released prior to or at completion and it can be difficult to convince third parties that hold PPSR registrations over a target business to release those registrations quickly (as there is often no incentive for them to do so).  There may also be large numbers of historical registrations that haven’t been released and reconciling all of the registrations can be time consuming.

Tip 12 - Don’t forget post-completion steps after the champagne is popped

• These could include ASIC filings, asset transfers (e.g. motor vehicles), escrow arrangements, completion accounts preparation, assistance from the seller after completion, non-competition restraints, and warranty claim periods.
• Prepare a timetable of post-completion steps and diarise the relevant dates.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

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