PREPARE YOUR BUSINESS FOR SALE - FORMER EMPLOYEES

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PREPARE YOUR BUSINESS FOR SALE - By Mark Corke

Former employees

Popular business thought has it, that once a business is disposed of, it has been expunged from the previous owner’s list of assets and liabilities; reduced to an asset in the form of money, and available to be turned into a holiday home, fast car or new business.


This is not necessarily so, and South African business owners, who would be sellers, are well advised to look to the quality of the eventual purchaser of their business if they themselves are to stay out of the proverbial poor house, possibly three years after the deal has been finalised.

Staff: Your greatest asset or a retirement - sinking liability?

In time gone by, it was not unusual for a business owner to dispose of the staff "thorn in his side" by simply selling the business. In the process, he would retrench all staff. The new owner, usually in discussion with the seller, would rehire those he was advised would work hard, and give him no trouble. This resulted in a sword being held over the heads of workers in any business: “If you bunch of idiots are not careful, I will retrench the lot of you, and sell the business”.


With a revision of section 197 of the Labour Relations Act in 2002, this was all changed. It may sound terribly complicated - all those numbers and “sections” and “acts”. But it really is very simple, and you should download the Act, and read it. You will find it on Suitegum’s web site here, if you don’t have a copy. Look out for “197” down the left hand side, and read the section.


Here’s the good news: It is only about 3 pages long, and if you read it slowly, and with a pencil, it will all make perfect sense, no matter how thick you may think you are! But that having been said, the nexus of this section of the Act is the protection of workers in the transfer of a business from one business owner to another. And the point is, in brief, that your employees cannot be compromised through the change of ownership, unless of course you get their agreement to be hard done by.


We all know that this isn’t about to happen, don't we? But, as they say in those very long advertisements: That’s not all! Once you have sold your business, the transfer has gone through, and the employees are all ecstatic in their knowledge that life goes on as usual; you, the seller, will be held jointly and severally liable, with the purchaser, for the next twelve months, should any retrenchments or actions to the detriment of the employees, take place in your old business (which is no longer under your control!) And practically, here is the reality: Your buyer has just hocked himself to the hilt, given his life to the banks, and has no means of raising more money. He is as closely allied to technically insolvent as he is allowed to be, without becoming criminally liable. You, on the other hand have the, not unsubstantial, proceeds of the sale of your business languishing in your various investments.


So who’s going to be paying when your purchaser feels that he simply has to get rid of some workers so that he can pay himself enough to survive the Christmas downturn? Of course this can be dealt with in your agreement of sale tailored for your particular business. This is one of the best reasons to use an agreement drawn up specifically for your business transaction.


My advice is to avoid those standard documents which may be tweaked slightly by an unqualified broker. Decent intermediaries will employ the services of a commercial attorney to ensure that the deal stays stuck and the seller is protected against the possible ravages of post deal ineptitude of buyers. Hell, you're paying them enough!


In an agreement of sale of your business, these are some of the things that you should make sure are included in a clause to ensure that the new owner agrees not to sink you for at least the first twelve months of his ownership of the business. These would include at least the agreement to not retrench, nor change the conditions of employment, without the written agreement of the workers. In addition to this, it may be prudent to retrench dead wood yourself, in the run up to the sale of your business. But make sure that you can justify this operationally.


You cannot retrench to make your business more attractive to a buyer.

Cheers
Mark Corke