If you’re buying or selling a business in Victoria you may have been asked about or heard the term ‘Section 52 Statement’.
In this article we answer your questions:
- What is a Section 52 Statement?
- Who prepares the Section 52 Statement?
- When is a Section 52 Statement required?
- What information does a Section 52 Statement contain? and
- What happens if it’s not provided or is false or inaccurate?
What is a Section 52 Statement?
A Section 52 Statement is a small business disclosure statement in the form prescribed in Form 2 of Schedule 1 of the Estate Agents (General, Accounts and Audit) Regulations 2018. Its formal title is ‘Statement by a Vendor of small business.’ The current version (updated in August 2018) can be downloaded for free here - Statement by a vendor of small business.
Who prepares the Section 52 Statement?
The Section 52 Statement is usually prepared by the seller’s accountant with assistance from the owner/seller and their lawyer.
When is a Section 52 Statement required?
A Section 52 Statement is required for the sale of a small business in Victoria at a price up to $450,000.00 (as at May 2020). The goodwill, plant and equipment, and fittings of the business are used to calculate this price. This means $450,000.00 does not include the stock and intellectual property of the business.
The only exception is if your business holds an active licence or permit under the Liquor Control Reform Act 1998 and cannot lawfully operate without one. This means that bars and clubs are exempt from providing a Section 52 Statement.
What information does a Section 52 Statement contain?
The Section 52 Statement provides a due diligence guide for a buyer/purchaser and sets out the financial performance of the business over the last two years. From 20 May 2018, the statement must also provide the financial performance for the current financial year up to the most recent quarter.
The vendor's Business Operating Report is particularity important as it must show information for the current accounting period, information about the previous two (2) accounting periods (unless the business hasn't existed that long), and be certified by a practising accountant.
What happens if it is not provided or is false or inaccurate?
If the statement is false or inaccurate or the Section 52 Statement is not provided to the purchaser before they sign a sale of business agreement or pay a deposit then the purchaser has the right to avoid the contract within three (3) months of signing. Avoiding means all of the purchaser's money and deposit are refunded and the contract is at an end.
This right to avoid is only available where the purchaser hasn’t already taken over the business and settled the sale.
There can also be penalties awarded for failing to provide the statement and a purchaser may need to commence court proceedings to enforce these rights.
Buying or selling a Small Business?
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Ignatius Suwanto is a lawyer at Sharrock Pitman Legal. He is a member of our Property Law team. For further information, contact Ignatius on his direct line (03) 8561 3331.