During the course of operation for a business, most business owners will enter into agreements with creditors under which they agree to provide a security interest over the business and/or all real and personal property. Common examples of these types of arrangements include business loans and equipment hire agreements.
To secure their interest over the business, most creditors will record their interest on the Personal Property Security Register (PPSR).
Considerations When Selling Your Business
Under most contracts for the sale of a business, it is a requirement that a business be sold free from any encumbrances, which includes those security interests registered on the PPSR.
Accordingly, prior to completion you will be responsible for procuring a release from these security interests. This often includes getting into contact with the relevant creditor to determine any amounts outstanding before the creditor can take active steps to deregister their interest on the PPSR.
The process of procuring a release from any relevant security interests should be undertaken as soon as possible to allow for enough time for you to pay any outstanding amounts and for the release to be granted.
If you do not procure a release of the security interest, then completion may be delayed and you may be in breach of your contract for the sale of your business.
How we can assist
When drafting a contract for the sale of your business, it is important to consider the unique circumstances surrounding the interests recorded on your business assets.
Special conditions can be drafted to address issues which may arise with the release of the security interests, which include:
- Specifying that certain interests do not relate to the business and a release will not be provided.
- Allowing for an adjustment at completion so that the creditors may be paid out using the settlement funds.
- Provision for additional time to be given post-completion for a release of the interests to be procured.
It is crucial that you are aware of the liabilities that are registered on your business assets. Once aware, you can commence taking the relevant steps to address these liabilities to avoid any delays and a potential breach of your contract.
If you require assistance with sale of your business, Adams & Partners Business Law Team can assist you with your unique circumstances. Contact us on (02) 4721 6200.
Written by Shalvin Kumar.