A vendor of a business up to $450,000 in value must provide a Section 52 Statement* (Disclosure Statement) before a purchaser signs the contract of sale or pays the deposit. (Current as at August 2020)
The Section 52 Statement provides a due diligence guide and set out the financial performance of the business over the last two accounting periods.
The vendor’s declaration (at Section E of the Section 52 Statement) 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 been 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 in the statement is accurate and complete.
The Vendor’s Business Operating Report (Section D) must be certified by a practising accountant.
If a vendor fails to provide a Section 52 Statement to the purchaser before a purchaser signs the contract of sale or pays the deposit, or the Section 52 Statement that is provided is defective, the purchaser can avoid the contract. The purchaser must avoid the contract within 3 months of signing the contract 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 shall be guilty of an offence and liable to a penalty of not more than 10 penalty units.
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 contracts on the basis of a breach of the Australian Consumer Lawor the Fair Trading Act, or deceit, or misrepresentations.
* does not apply to the sale of a business that holds or is required by law to hold a liquor licence.
For more information please contact our friendly and professional team at Peter Speakman & Co on 9822 8611