INSIGHTS: Are you selling a child care business?

December 7, 2016

Whether you have negotiated the sale of your child care business yourself or through a business broker, you will need a solicitor with child care experience to prepare and negotiate the contract of sale, and manage the transaction through to completion on your behalf.

The legal process can be broken down into six distinct stages as follows.

Stage 1 – Gather information

The current owner of the child care business (vendor) will be expected to produce the contract of sale for the purchaser to consider. Given that the sale and acquisition of child care businesses gives rise to unique challenges, we recommend that a lawyer with experience of child care transactions be retained to prepare the documents.

The vendor’s solicitor will need important information and documents concerning the child care business including any lease, list of equipment, and schedule of employee entitlements.

Stage 2 – Prepare the contract

Whilst preparing the contract, the vendor’s solicitor should advise regarding special conditions the vendor may wish to include.

For example, your solicitor may include terms that exclude warranties about the condition of equipment or exclude warranties about the business takings and require the purchaser to rely on their own enquiries.

With child care business sales there should be conditions precedent in the contract dealing with the transfer of the service approval.

The vendor will need to stipulate how employees are to be dealt with on the transfer.

Stage 3 – Exchange contracts

When each party’s solicitor is happy with the terms, the contract will be legally exchanged and the purchaser will pay the deposit, usually to the vendor’s agent or solicitor to be held in a trust account. From this point on there is a legally binding agreement to sell and buy, subject to the conditions precedent being satisfied.

Stage 4 – Transfer of the service approval

The vendor and the receiving approved provider must jointly notify the regulatory authority in writing of the proposed transfer within strict timescales prior to the transfer taking place. The regulatory authority is taken to have consented to the transfer unless it intervenes or objects.

Any intervention or objection by the regulatory authority must be notified to the parties in writing at least 28 days before the proposed date of transfer. Additional conditions may be imposed upon the service approval because of the transfer.

The receiving approved provider must give written notice to the parents of children enrolled at the child care business of the service approval transfer, at least two days before the transfer.

Stage 5 – Completion

The parties’ solicitors liaise to agree the time and date for completion and make sure all documents required to be handed over are ready in time, and where the vendor has bank borrowings secured over the business being sold, the bank will attend settlement and hand over releases of security interests in return for settlement cheques repaying the borrowings.

Stage 6 – After completion

Both the vendor and the purchaser must notify the regulatory authority of the transfer in writing within strict timescales following completion. The regulatory authority will then amend the service approval and provide a copy of the amended service approval to the receiving approved provider.

If a lease has been assigned to the purchaser then the transfer of the lease must be registered with the relevant land titles office.

For advice or assistance in relation to the sale or purchase of child care businesses, please contact Mark Fitzgerald (Melbourne), Michael Bracken (Sydney) or Georgina Odell (Sydney).