By Ashton Sesel, Lawyer, LegalVision.

Selling a business involves a number of steps, like the due diligence process, finding a buyer, contract negotiation, and completing the sale. Now that the dust is beginning to settle, there are still actions you will need to take after the sale is complete. You may have ongoing obligations to the purchaser and potentially one last huddle. This article explores the final steps your business should take after the sale. 

Look Out for Payments

Since your customers pay money into your company’s bank accounts, you will need to notify your customers of the purchaser’s bank accounts. You will also need to monitor your company’s bank accounts and remit any amounts received by you from customers after the agreed completion date to the purchaser. 

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Wind Up the Company

Generally, after a business sale, your company no longer has the necessary assets to carry on business. As such, it is likely time to consider winding up. Depending on what is left of your company, you broadly have two options:

• deregistration; or
• winding up.

Deregistration

If you are eligible to deregister your company, deregistration is the easiest method of closing down your company. To be eligible, you must ensure that:

• all of the company’s shareholders agree to deregister;
• the company no longer conducts business;
• the combined assets of the company are worth less than $1,000;
• there are no outstanding liabilities (e.g. unpaid employee entitlements or tax owing to the ATO);
• all outstanding fees have been paid to ASIC; and
• the company is not a party to any litigation or legal proceedings.

Winding Up

Winding up a company is an option if your company does not meet the requirements for voluntary deregistration. For example, your company’s assets might be worth more than $1,000.

You can only wind up your company voluntarily if the company is solvent. Generally, there are four phases involved in the voluntary winding up of a company: 

1. Declaration of Solvency – The majority of the directors of the company make a declaration of solvency. 
2. Special Resolution – After your company lodges a solvency declaration, company members must pass a special resolution. A special resolution is where at least 75% of the shareholders vote in favour of the resolution to approve winding up of the company. 
3. Notify ASIC – You then have seven days to lodge a:
   • Form 205 – Notification of resolution; and 
   • Form 505 – Appointment of a liquidator.
   • You will also have only one business day to publish a notice of your winding up on ASIC’s Published Notices.

1. Liquidator – once you have carried out the corporate governance steps above, the winding up is largely performed by the liquidator appointed by the special resolution of the members. Where the liquidator forms the view that the company is solvent, ASIC will deregister the company three months after receiving the final forms required of the liquidator.

Comply With Restraints

After the sale of your business, you may be subject to a restraint clause. Typically, restraint clauses will prohibit you from participating in or conducting a competing venture within a defined area and time period.

Typically, a restraint clause will prohibit you from:

• providing services that are in competition with or of a similar nature to the purchaser’s business; and
• soliciting or enticing away from the purchaser clients, customers, suppliers and employees

The restraint will be limited by a set time and within a defined geographical limit. It is common to draft these limitations as cascading provisions meaning that you list multiple time and geographic ranges. If a court decides that a limitation is illegitimate, they will strike out the unfair limits whilst leaving in place any the court considers reasonable. A cascading clause might look like this:

Are Restraint Clauses Enforceable?

As a general principle, restraints are only enforceable to the extent that they protect a legitimate business interest.
What is reasonable depends on whether:

• the clause protects a legitimate business interest; and 
• its scope is reasonably necessary to protect that legitimate interest.

A legitimate business interest might include:

• a commercial interest, such as confidential information that would cause damage to your business if leaked; or
• the goodwill of your business, such as the relationships between your business and its customers and partners. 

Key Takeaways

After the sale is complete, be mindful of some final steps you must complete. First, you must provide your bank details to the buyer and monitor your bank account. You should also notify your customers of the change of management. Importantly, ensure your customers are not still paying you for services when they should be paying the buyer (new owner). Second, consider deregistering your company or winding it up. Finally, observe any restraints that may be in place. 

For assistance with your business sale, our experienced sale of business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 532 904 or visit our membership page.