Arranging settlement

After contracts are exchanged, the focus of the parties and their solicitors is on taking the steps required for settlement.

Timing

Settlement should usually be arranged as soon as possible after exchange of contracts, to minimize the chances of problems arising from the vendor’s continuing conduct of the business.

Action plan

An action plan should be prepared, showing what steps are required to be taken and by whom, in order to bring about the settlement. The solicitors for the parties should then work through those steps to achieve the settlement.

Pre-settlement issues

In some states and territories, there may be pre-settlement steps, such as a requirement for the vendor to provide certain forms or notices to the purchaser.

Personal Property Securities Register

Most businesses are subject to security interests registered under the PPSR system. The purchaser will require that these be discharged on or before settlement. If the vendor needs the money from settlement to discharge the securities, this can be handled like the discharge of any other mortgage, where part of the payment of the purchase price is directed to the secured party in return for discharging the security. As the PPSR system is online, and does not rely on paper, the discharge takes the form of the secured party providing the password, known as a “token”, to enable the charge to be removed from the register. However, for securities already registered prior to the PPSR system coming into force in 2012, there is no token, so the secured party generally provides a deed of release and an undertaking to register the release with the PPSR.

Venue for settlement

The settlement will usually take place at the vendor's solicitor's office, although there is no strict rule about this. Some jurisdictions follow the old conveyancing convention that settlement must take place at the site of the deeds, which is often the vendor's bank. In some cases, it may be best to settle at the business premises, because the relevant documents are usually available there.

Payment of purchase price

The convention has been that the purchase price is paid on settlement by bank cheques. However, many purchasers prefer the more modern procedure of paying by bank transfer. This applies especially if the money is coming from overseas. The legal profession has not caught up to this, and using bank cheques is often still the only way to settle, unless arrangements can be made with banks to arrange instant transfer of funds.

Transfer of shares

Where the transaction is a sale of shares in a company conducting the business, the settlement will usually include:

• • transfer of vendor’s shares; and
• • replacement of the directors and secretary.

These steps require preparation of documentation including:

• • consent of the new directors and secretary;
• • minutes of meetings of directors and, possibly, shareholders; and
• • ASIC Form 484.

See Arranging settlement.