When buying or selling a financial services business, its real value can only be fully realised once a licensee compliance review has been undertaken.

According to Holley Nethercote solicitor, Naomi Fink, this is because the parties involved may not understand the subtleties inherent in holding an AFSL or ACL licence.

So, sellers need to be aware that poor compliance may devalue the business and buyers may seek recourse from them if compliance problems are identified after the sale is completed.

“Buyers in particular can limit the adverse cost and liability consequences of buying a non-compliant business or one that has potential exposure in relation to “toxic” investments by conducting thorough due diligence prior to purchase,” Ms Fink said. “A prudent buyer should look at some key indicators about the regulatory health of the business, as well as future considerations.”

These include:

• AFSL or ACL conditions – are there any onerous conditions on the licensee which have not been complied with? Will any be breached as a result of the sale, such as a key person condition?
• AFSL or ACL authorisation – AFSLs and ACLs are not transferrable. If the buyer is purchasing all the shares in the company which holds the licence, it will need to, among other things, replace all the responsible managers and notify ASIC of a change in control of the licensee. If the buyer is purchasing only the business, the buyer’s own AFSL or ACL should have the proper authorisations required for the business it is acquiring.
• Advice and client records – do the Statements of Advice demonstrate that advisers have given quality advice that is appropriate for clients?
• Compliance procedures – are the compliance policies and procedures clearly documented, up-to-date, understood and followed by all staff? Has there been a recent external review of these procedures?
• Complaints register and breaches register – have complaints been recorded and addressed? Have breaches been reported where necessary and rectified?

Naturally there are a number of other important considerations when buying or selling a business relating to matters such as:

• Price
• Assets
• Liabilities
• Confidential information
• Intellectual property
• Restraints of trade
• Employees

There can be significant legal repercussions for both buyer and seller if any of these matters are overlooked. So, if you are in the process of buying or selling a business and want to be sure you are maximising your return on investment then call Naomi on Tel: +613-9670 8200.

True value of financial services business only realised following compliance review by Holley Nethercote Commercial Lawyers is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 Australia Licence.

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