Buying and selling businesses can be a challenging, expensive and time consuming proposition.
In our experience, in the NDIS context, this is even more the case. Getting it right is critical to avoiding extra compliance risks and over-paying or under-selling.
All the usual problems apply, such as restraint clauses, employees, actions at completion, warranties and indemnities, and the passing of liabilities, assets and stock.
Selecting the right mechanisms to implement the acquisition is crucial. Acquisitions are moulded by factors such as the objectives, risk appetite, bargaining power, desired timing, existing structures, tax status and registrations of the parties. Similarly, the negotiation of a completion mechanism which ensures things like timing, transfer of employees, payments and confirming that the right liabilities pass to the buyer (and others do not) is also a key consideration. Getting to an agreement which is sensitive to all these needs requires specific advice and guidance.
Then, there is also the NDIS regulatory overlay to consider.
Even where acquiring or selling an unregistered provider business (or its assets), it is not simply a matter of assigning a contract or changing the directors. This is due to the:
For example, in a registered provider’s case, an acquisition will require notifications to the NDIS Commission to advise of (among other things) changes to contact details, the type of entity, key personnel, suitability considerations of these new personnel, worker screening checks (if not already undertaken), any change to geographical area, financial capacity, locations for provision of support and any significant increase or decrease in scale or the number of workers in the organisation. Providers should consider how any acquisition will change both their organisation and the target organisation and what notifications are required.
Where there is a sale of assets or a share sale in respect of a registered or unregistered provider, participants cannot be ‘locked in’ and revenue streams cannot be ‘guaranteed’ due to the effect of the Code of Conduct and the concepts of ‘choice and control’. Participants must be fully informed so that they can exercise genuine choice and control, and they may ultimately even choose to go to another provider. Bespoke claw back or run off clauses can be used to mitigate risks for buyers and sellers.
In light of these limitations, created by the Code of Conduct, sellers should also be wary of making representations in respect of service agreements with participants and revenue flows.
Finally, with the NDIS Commission’s present regulatory approach, there are significant compliance risks to consider. Due diligence should be undertaken for any business acquisitions to determine the nature of the business, the assets (including the service agreements and their quality), any compliance notices or enforceable undertakings issued against the business and key compliance risks faced by the business.
Evidently there is a lot to consider when acquiring a business, particularly in the NDIS sphere.
For a discussion about the best way forward with acquiring or selling a business, contact Amber Crosthwaite at amber.crosthwaite@lavan.com.au.