If you're buying or selling a small business in Victoria you'll likely be asked the question, "Have you got the Section 52?" Lawyers and agents tend to forget this word is jargon, so in this article I'll explain what a Section 52 Statement is and its requirements.
What Is A Section 52?
A "Section 52" is a disclosure statement that vendors must provide purchasers when selling a small business in Victoria. The statement outlines the financials of the business over the past two years.
If a Section 52 is not provided to the purchaser before they sign a contract agreement, document, or vendor/agent accepts a deposit, it gives the purchaser the right to avoid the contract within 3 months of signing if they haven't taken over the business. Avoiding means all of the purchaser's money and deposit are refunded and the contract is at an end.
I'm A Vendor, Do I Need To Provide A Section 52?
You must provide a Section 52 to the purchaser if the total price of the small business is $450,000.00 or less. The goodwill, plant, equipment, and fittings of the business are used to calculate the total price. This means the stock and intellectual property of the business do not form part of this calculation.
There's only one odd exception to this rule. If your business holds an active licence or permit under the Liquor Control Reform Act 1998 you do not have to provide a Section 52. This makes bars and restaurants with active liquor licences exempt from providing one. You should get in touch with a business lawyer to clarify if you need one.
What Are The Requirements Of A Section 52 Statement?
The Section 52 must include all content in the Form 2 document listed in Schedule 1 of the Estate Agents (General, Accounts and Audit) Regulations 2018, including:
- A: Important information for Vendor
- B: Important information for Purchaser
- C: Business information Section
- D: Vendorʼs Business Operating Report
- E: Vendorʼs declaration
- F: Acknowledgement of Receipt by the Purchaser
All sections of this form must be complete and accurate.
The vendor's Business Operating Report is particularity important as it must show information for the current accounting period, information about the previous 2 accounting periods (unless the business hasn't existed that long), and be certified by a practising accountant.
Who Prepares The Section 52 Statement?
Consequences Of Not Providing A Section 52 or An Incomplete One
If you are required to provide a Section 52 but don't or it is incomplete, the purchaser can avoid the contract and have all their money refunded within 3 months of signing a contract agreement or document if they haven't taken over the business.
Under the Estate Agents Act 1980 there can be a penalty of up to $1,611.90 (18-19 financial year).
What If A Section 52 Is Inaccurate Or False?
If a Section 52 is inaccurate or false the same consequences apply as above and the purchaser can avoid the contract if within the time deadline. However if the vendor argues that the Section 52 is accurate, the purchaser may have to go to court to have their money returned.
I'm A Purchaser, What If I Miss The 3 Month Deadline or Settle? Do I Have Any Recourse If The Section 52 Is Faulty?
You can only rely on the provisions of the section 52 statement to get out of the contract within the 3 month deadline and before you settle. If you settle you cannot rely on the Section 52 Statement, however there may be other options available depending on what is written in your contract and your individual circumstances. You should contact an experienced business lawyer in Melbourne to discuss you options.
Why Is It Called A Section 52?
The official name of a Section 52 is a "Statement by a vendor of a small business". That's a bit of a mouthful. So everyone just calls it a Section 52 as that is the relevant section of the Estate Agents Act 1980 that enforces the document.
Buying or Selling A Small Business?
Make sure you get the right advice to ensure your transaction goes smoothly. Get in touch with us on 03 9708 5564.