Business & Commercial
This is an area where Mike Newdick and John Stirling offer professional services. They have each had many years experience assisting both the vendors and purchasers, particularly of small to medium sized businesses with values between $50,000 and $5,000,000.
Given the increased regulatory environment we now operate in, the sale and purchase of a business is becoming increasingly complex and there is a need to obtain sound professional advice when embarking on either a sale or purchase of a privately held business.
Business Sale and Acquisitions
Our services include assisting the client in drafting the initial Agreement for Sale and Purchase incorporating the various conditions such as due diligence, finance and resource consent which may be applicable to the transaction.
Company Structures
Careful consideration must be given to the correct structure which is the most appropriate vehicle to carry out the purchase of a business. The range of options include private individuals, partnerships, trading trusts and limited liability companies.
The issues to be considered when determining the correct vehicle involves cost, flexibility, risk exposure, ability to raise finance and tax effectiveness.
Due Diligence
This is an issue which must be considered carefully from both the vendor and purchaser’s perspective.
From a vendor’s perspective, it is appropriate to anticipate the due diligence requirements of prospective purchasers before a business is offered for sale, to ensure a comprehensive due diligence package of information is available at the time the business is offered for sale. This ensures there is a minimum delay in the purchaser and their professional advisors receiving the information required in assessing whether the business is acceptable for their requirements. It may also direct the attention of the vendor to resolve certain issues prior to offering the business for sale to avoid any information being received by a purchaser during the due diligence period.
From the purchaser’s perspective, the due diligence procedure is vital to ensure the bargain they are receiving is what they have originally contracted to purchase. Identifying any issues which require further discussions between the parties, and price adjustment as a result of a careful due diligence examination, will avoid the costs of seeking redress later from a vendor through the expensive and uncertain litigation process.
We believe it is appropriate to form a team of professionals to assist a vendor or purchaser throughout the due diligence period of a transaction to ensure comprehensive advice is obtained on all aspects of a transaction; including assets values, trading history, resource management issues, leasing issues, marketing and competition.
Leasing
The premises from which a business operates are an important component in business viability. For example, if premises are leased at a below market rental and a purchaser encounters a significant rent review following the business purchase, this could seriously effect the business viability especially if it is trading on tight margins.
It is also imperative to review all documentation relating to the lease and ensure there are no contingent liabilities which are not identified, such as the obligation to significantly reinstate premises should a purchaser have the intention of re-locating the business shortly after completing the purchase.
Financial Structures/ Funding/ Finance
This area is associated with issues concerning company structures. Depending on the type of funding required, a review of the correct business structure will be required.
Historically individuals and partnerships have struggled to raise funding against specific business assets although this situation has now been mitigated by the opportunity to provide general security agreements (similar to the former debentures) over their assets and undertakings. It is our experience, however, that financial providers still have as their preferred borrower a limited liability company when reviewing what level of funding will be undertaken.
It is necessary to carefully consider what security requirements are sought by a funder to ensure as far as possible funding to a trading entity is quarantined over the immediate assets of this entity and guarantees over collateral assets such as family homes and investment properties are minimised.
Business Risk
It has become more prevalent in recent times to carefully assess business risks and from a borrower’s perspective limit the risk to the immediate assets.
Proprietors are no longer willing to simply offer guarantees with supporting collateral securities over houses, investment properties and other similar assets. It has become more common to limit the extent of collateral securities to a specified sum that is necessary to fulfil the lender’s funding criteria.
We also advise clients it is important, should a family trust or other entity be called upon, to offer security securing a trading entities funding. Such a family trust essentially acts as a banker to the company and should receive security from the company as consideration for the securities it is offering.
Creditor Issues
Unfortunately from time to time businesses may suffer liquidity or creditor issues often through external circumstances beyond their control.
Over the years we have assisted many clients with presenting proposals to creditors which are designed to allowed businesses to trade out of their current situation without the need for creditors to exercise their formal remedies under securities. This is often the most appropriate and cost effective way of dealing with a financial crises encountered by a company.
Solvency Issues
If a trading entity, from time to time, finds itself facing solvency issues there are important legal ramifications to the directors and proprietors from carrying on business. It is important to identify these issues and mitigate the risks.
We have also experienced the desire of proprietors to introduce additional capital without carefully considering what steps can be taken to secure the additional monies being introduced.
There are a range of options available which include taking formal securities over the company or assignments of existing financer’s securities in consideration of further funds being introduced.
Liquidations & Winding Up
There are a number of issues that arise in relation to a liquidation be it voluntary or forced in relation to a trading entity. This often involves the use of insolvency practitioners and dealing with receivers and liquidators.
It is important for proprietors to obtain professional advice as early as possible as often events leading to a liquidation/receivership/winding up have caused significant stress to be borne by the proprietors and they may have difficulty in clearly identifying the facts and considering these when determining what are the preferred options available.
There is often a tendency for a Director to attempt to trade out of an insolvent situation where there is no realistic prospect of this being achieved. In such circumstances expert professional guidance is required.
The continued trading activities may incur further liabilities and lead to further liabilities extending beyond the trading entities’ assets.
Shareholder Disputes
When embarking on any commercial enterprise it is important for the parties to turn their mind to the potential for disputes in the future and agree upon a fair and cost effective method for dealing with these disputes.
Mediation through a formal and qualified mediator has become significantly more popular over the last ten years. It offers the advantages of speed, privacy and cost effectiveness.
There are other options including arbitration and litigation. We have at Turner Hopkins significant experience in mediation, arbitration and formal litigation. Michael Robinson, senior partner litigation, has over 15 years experience in this area of law.
