A vendor of a small business, being a business in which the goodwill, plant, equipment and fittings being sold have a total price of $450 000 or less, must provide a Section 52 Disclosure Statement to a purchaser before the purchaser signs the contract of sale or pays a deposit. The requirement to provide a Section 52 Disclosure Statement does not apply to the sale of a business that holds or is required by law to hold a liquor licence.
The Section 52 Statement provides a due diligence guide and sets out the financial performance of the business over the last 2 accounting periods.
The Vendor’s declaration must be signed by the vendor. The vendor must declare that since the end of the last accounting period no circumstances have arisen or practices adopted that have affected the businesses’ gross profits or adversely affected, or be likely to adversely affect, the conduct of the business. The vendor must declare that the information contained in the statement is both complete and accurate.
The Vendor’s Business Operating Report contained in the Statement must be certified by a practising accountant.
Failure by a vendor to provide a Section 52 Disclosure Statement to a purchaser before a purchaser signs the contract of sale or pays a deposit, or where a vendor provides a defective Section 52 Statement, entitles a purchaser to avoid a contract. In these circumstances a purchaser must avoid the contract within 3 months of signing, and before taking possession of the business.
A vendor who fails to provide a Section 52 Statement in the prescribed form containing the prescribed particulars will be guilty of an offence and liable to a penalty.
In addition to the purchaser’s right to avoid the contract where the vendor has failed to provide a Section 52 Statement, or where the Statement if defective, alternative causes of action may be available. These actions include claiming damages and/or rescinding a contract due to a breach of the Australian Consumer Law or the Fair Trading Act, or deceit, or misrepresentation.
For more information please Fleur at Armour-Craig Legal on (03) 56364986.