[EP 289] Navigating Employee Agreements During a Business Sale & Deal Team Assembly Tips

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Joanna Oakey [00:00:24]:
Hi, it’s Joanna Oakey here and welcome back to the Deal Room Podcast, a podcast proudly brought to you by our commercial legal practise. Aspect Legal now today we’re stirring things up a bit with another of our special segments. It’s time for another thrilling episode of Ask Me Anything. Now, if you’re new to the Deal Room podcast, let me give you a quick rundown. I’ll Ask Me Anything segment is where I dive into the questions that you, our incredible listeners send in. And not just your questions, we also feature queries from our fabulous guests and those interesting nuggets we encounter during our day to day practise. So here’s your chance to have your burning questions answered. Email [email protected] we’re eagerly awaiting your queries and don’t worry, you’ll find the link in the show notes to that for easy access as well.

Joanna Oakey [00:01:27]:
So look, don’t hold back. We’re open to talking about anything and everything on this podcast. So buckle in because it’s time for another thrilling edition of Ask Me Anything.

Leanne Faulkner [00:01:41]:
So Joanna, I was wanting to ask you a couple of things. The first question is when I’m say I’ve decided, okay, well in a couple of years I am going to exit my business. What team of experts specifically do you think I should assemble to help me on my journey?

Joanna Oakey [00:02:02]:
Okay, so obviously I’m going to say a lawyer because I’m a lawyer, of course. So I think before team of experts, get yourself educated. So, so you know, understand a bit about what, what, what is value in the industry that you’re in and what are the risks? The inner buyer’s eyes. So you know, I like to talk about looking at from a buyer’s eyes. So like where, where is the value and the risk in your business and your industry? And then that will help you pick out the right advisors to help you, help you lock in and protect that value, minimise the risk. So that’s sort of the aim of the game. And so you want, you know, lawyers obviously can help you or the right lawyers, lawyers who understand exit can help you with that. Accountants.

Joanna Oakey [00:02:49]:
So particularly there’s two things from accountants, number one, tax advisors. So you really really, really need someone on your deal team that understands tax and can give you absolute clarity about the. What the tax outcomes are based on, different ways that you might sell your business, business sale, share sale, whatever. So you need to understand that. And one of the reasons why you really need to understand that in advance as well is if the answer is a share sale, which quite often it might be, if you’re at a particular sort of sale level and you’re able to access various exemptions or discounts or whatever, you, Your balance sheet might need a lot of tidying up. And sometimes like, well, we might have loan accounts in there or whatever, and that can take years to properly, most efficiently tidy up. And I say years because sometimes loan accounts have to be taken out slowly over time to be most tax effective and stuff like that. Like.

Joanna Oakey [00:03:50]:
So there can be loads of things that you need to think about from that perspective. So we’ve got our lawyer, our accountant, sorry, our tax advisor, and our tax advisor might be our accountant or they might be a more specialist sort of arm and then our accountant to keep our financials clean. Because this is what you want to be doing. You want to be making sure you’ve got someone who’s working with you to really ensure your business and your financials are clear, clean and easy for you to access. Future when you, when you’re in due diligence, you might want to speak to a business broker or a corporate advisor.

Leanne Faulkner [00:04:29]:
Yeah, I was going to ask about that.

Joanna Oakey [00:04:30]:
Absolutely. So there are people in the market and, you know, I particularly recommend finding someone to, who is knowledgeable in your, your business in some way, so your industry or within your size of business or type of business. You know, find and speak to a few business brokers. That’s often a great idea. Find someone that you resonate with and who can help guide you as to what. What is the likely best buyer for your business and what are they looking for in your business. And there’s like exit advisors as well. There’s exit advisors, a lot of exit advisors and they’ll do the same thing.

Joanna Oakey [00:05:13]:
But the good thing about business brokers is they’re in the market, they’re seeing right now where the buyers and the opportunities are. So, like, I’ve probably left out a whole lot. And then, you know, once you’ve worked all of that out, you might realise you need to work on the people side. So maybe there’s HR to work out or you might need to work on technology or not. But, you know, once you’ve got that core team that can help you reflect on your business. Then you can build out whatever else you need to make that an asset that a buyer wants to buy. That’s the thing.

Leanne Faulkner [00:05:44]:
Okay, that’s great. That’s actually really useful to know to be able to assemble that team and when to think about that. My other question does actually relate to the people side and the HR side because I’m just curious to hear about what’s typical. I don’t really know. I can only really talk from my own experience. But when Billy Goat was sold there was key negotiations that took place where the purchaser actually took over the employment agreements for our key staff in the business. So they became employed by the new owner and they continued the long service leave, their holiday leave, everything absolutely continued. Now is that typical and is that expected in the sale of a business?

Joanna Oakey [00:06:33]:
Yep. So, so we there. There’s some two different ways that you can sell a business, a business seller, a share sale. If it’s a share sale, that’s it. Everything will continue the way it is. So there is no decision point there. It just employees continue to be retained by the business as they were or the company as they were before because it’s nothing changes from that perspective. The change happens at ownership level.

Joanna Oakey [00:06:57]:
In a business sale we every. The way business sale happens is all of the assets are taken out of the business and moved to the new business. So it’s sort of like this transfer of all of the assets. But from an employment context. There is also legislation here in Australia, the Fair Work act that deal with transfer of employees in a business. Now essentially, and just like really generally, and this is not specific legal advice, this is general in nature, don’t rely on this, go see a lawyer first before you make decisions in your business. But just from a really high level perspective, generally speaking, a buyer is generally required under the legislation to if they are taking on the employees to continue to recognise a few things. And no matter what happens, no matter how the employees are transferred, whether they’re terminated and the and the holiday leave or the annual leave is paid out and then started again or whether it just transfers across, the two things that will continue are the for long service leave purposes, the date that that employee was initially employed by the business, so that date will continue to pass across to the buyer.

Joanna Oakey [00:08:28]:
So that means for example, if you’ve got employees who have been working for you for nine years here in Australia, long service leave kicks. Sorry, in New South Wales, long service leave kicks in at 10 years. So nine years. The. There’s the Long service leave hasn’t triggered so that the staff member can’t take it, but once they’ve been with the buyer for one year, it will trigger. Does that make sense?

Leanne Faulkner [00:08:57]:
Right. Okay.

Joanna Oakey [00:08:58]:
To work out their way as to how they’re going to navigate that sort of contingent liability we talk about. And just to make it a little bit more complex, every state in Australia has slightly different rules around long service leave and when that kicks in. So isn’t that exciting for businesses in Australia trying to work out, you know, how that applies to them. And then the one other thing is personal leave. So personal leave, those personal leave balances carry across to the buyer. So the question more for the buyer and seller is about it’s not so much what transfers across because generally most everything transfers across if it’s not paid out by the, by the seller, essentially. It’s more about how is it that some of these things that are contingent liabilities, how are they going to be adjusted as between the buyer and the seller? And that’s the, that’s the thing. And I find many, many sort of advisors, accountants, you know, sometimes brokers, buyers, sellers are confused out there and think that you can just zero everything out and then just start the employees afresh.

Joanna Oakey [00:10:13]:
But the reality is it’s not that simple.

Leanne Faulkner [00:10:16]:
Right.

Joanna Oakey [00:10:17]:
And one other thing I’d add there. Most buyers are buying a business because of the value that they want to get in a business. And usually staff are a very large, or the knowledge at least of staff are form a very large part of that value. So I think it’s very short sighted for buyers and sellers as well to want to do things that might destabilise the staff base. You know, my personal opinion is, you know, employees generally very important to the value of a business. You do whatever you can in that change management process to keep, you know, an even keel as much as possible so that employees don’t feel, you know, exposed and, you know, sort of off kilter because then if they don’t feel secure, they’ll just leave.

Leanne Faulkner [00:11:08]:
Right.

Joanna Oakey [00:11:08]:
They’ll go get another job.

Leanne Faulkner [00:11:09]:
Right.

Joanna Oakey [00:11:10]:
And then part of the value is just walked out of your business.

Leanne Faulkner [00:11:13]:
Exactly. Great. That’s really good. Thank you, that’s really helpful.

Joanna Oakey [00:11:16]:
Cool. Wonderful. Thank you very much, Leanne.

Joanna Oakey [00:11:20]:
Well, that’s it for our Ask Me Anything episode today. I hope you found that useful. Now we’ve got a few more of these style podcasts coming up soon. I find it invaluable to be able to answer these top of mind questions, whether they’re from our guests, our audience or our client. Now, if you have a specific topic or question that you’d like us to discuss, then submit your Ask Me anything questions to podcastpectlegal.com or cheque out the Show Notes to this episode, where we will link right through to an email for you to submit to Submit your Ask Me Anything questions and an important reminder that if you would like any legal assistance with matters that you’re working on at the moment, then don’t forget you can book in for an initial free call directly with our Legal Eagles at Aspect Legal by heading to our homepage@ aspectlegal.com au well, that’s it for me today. My name is Joanna Oakey and you’ve been listening to another wonderful episode of our podcast, proudly brought to you by our commercial legal practise, Aspect Legal. See you next time, ladies and gentlemen.