An amalgamation of two registered clubs under the Registered Clubs Act is likely to be one of the most legally and commercially complex matters that a registered club will ever undertake. For that reason, it is important to understand what an amalgamation is, when an amalgamation might be appropriate and what’s involved.
What is an amalgamation?
An amalgamation is a concept that exists under the Registered Clubs Act 1976 which results in the joining together of two or more clubs. The Registered Clubs Act allows an amalgamation to be effected in two ways:
- the dissolution of each club and the formation of the new club; or
- the continuation of one club (as the corporate entity of the amalgamated club) and the dissolution of the corporate entity of the other club or clubs.
Point 2 is the ‘traditional’ and most popular method of effecting amalgamation between two clubs. In that instance, one club becomes the “proposed surviving club” and the other club or clubs become the “proposed dissolving club/s”.
Why should clubs consider an amalgamation?
There are many reasons why a club might consider an amalgamation. Many, clubs consider amalgamation when they are facing financial difficulties or have entered into external administration – such as voluntary administration because of imminent insolvency.
However, a club may also be motivated to amalgamate for other reasons. For example, the club may wish to explore its options for growth with a larger club, or it may have identified that a larger club would be better equipped to ensure the long term viability of the club’s operations.
Clearly, in most instances, a club that has taken proactive steps to amalgamate before facing financial difficulties will be better placed to negotiate more favourable amalgamation terms than a club that is already under financial strain or that has entered into external administration.
What about a surviving/continuing club?
There are a number of reasons for a “proposed surviving club” to amalgamate. The reasons for amalgamating will obviously depend on the individual circumstances of each club but they may include:
- Preservation of “local community assets” and the services and facilities that clubs provide to the broader community; and
- Diversification into a new market and local community;
- A strategic acquisition of a competing club or an under performing club with significant potential to improve its performance;
- Commercial benefits such as increased profitability and the acquisition of assets such as land and gaming machine entitlements;
- Preservation of its long-term future (for example, a club which leases its premises may wish to amalgamate with a club which owns its premises in case the lease is not renewed).
Can a club that wants to be the surviving club call for expressions of interest in an amalgamation?
Yes, there is no restriction on a “proposed surviving club” being proactive and calling for expressions of interest in amalgamation. A benefit of this is that a proactive “surviving club” may receive amalgamation offers from clubs which:
- have not previously considered an amalgamation; and
- would not traditionally call for expressions of interest in amalgamation;
- are unwilling to call for expressions of interest in an amalgamation for some reason.
Additionally, this approach could avoid a situation where the surviving club’s amalgamation target club calls for expressions of interest in amalgamation and other clubs respond to that expression of interest in amalgamation. If this occurs, the surviving club may need to increase its offer to the proposed dissolving club to secure an amalgamation or alternatively, the surviving club may not be chosen as the preferred amalgamation partner of the dissolving club.
Can two (2) clubs have discussion about a possible amalgamation before one of them calls for expressions of interest?
Yes, this is now possible under recent changes to the rules for amalgamations in the Registered Clubs Act and Registered Clubs Regulation. In fact, a club can approach another club regarding a possible amalgamation and a club can also make unsolicited amalgamation/merger offers to another club at any time.
However, the clubs can not enter into an agreement or understanding to amalgamate until one of the clubs has called for expressions of interest in amalgamation and that club has considered all amalgamation offers that it has received as part of the expression of interest process.
In this regard, it is possible that the club which calls for expressions of interest in amalgamation may receive a better amalgamation offer from another club and consequently, it will wish to proceed with an amalgamation with another amalgamation partner.
To avoid the above scenario occurring a club which has identified a possible amalgamation target club is better to call for expressions of interest itself.
Can two (2) or more clubs amalgamate but without one being the continuing club?
Yes, they can and this is an amalgamation effected under point 1 above. However, additional issues need to be considered such as the formation of a new corporate entity.
This form of amalgamation may be appropriate where there is no dominant amalgamation partner (ie the clubs are similar in size, finances and built facilities) or where clubs believe the concept of having one of the clubs as a “dissolving club” may result in the members of that club voting against the amalgamation.
This form of amalgamation is rare for a variety of reasons, including the fact that it results in a duplication of a number of commercial matters. For example, the employees, members, assets and land of both clubs will need to be transferred to the new corporate entity whereas in a traditional amalgamation, only the employees, members, assets and land of the dissolving club need to be transferred to the surviving club.
Additionally, it is possible to facilitate an equal form of amalgamation by using the traditional form of amalgamation. This is usually done by amending the surviving club’s constitution to facilitate equality. For example, the surviving club’s constitution could be amended to provide each amalgamation partner equal representation on the board and each set of members the same membership rights.
What follows in this newsletter deals with the usual and certainly most common type of amalgamation to date which is where one club continues as the amalgamated entity (the surviving club) and the other dissolves as a corporate entity (the dissolving club).
What are the general steps in an amalgamation?
The general steps in an amalgamation are as follows.
For the purposes of this newsletter, Club A will be the dissolving club in the amalgamation and Club B will be the surviving club in the amalgamation.
- Club A calls for expressions of interest in amalgamation from other clubs in at least a fifty-kilometre radius. This is usually done by way of an advertisement in the ClubsNSW E-Circular.
- After Club A has called for expressions of interest in amalgamation, other clubs prepare and submit their “amalgamation offers” (i.e., their expressions of interest) to Club A.
- After the “closing date” for amalgamation offers, the Board of Club A reviews the amalgamation offers that it has received and then selects its preferred amalgamation partner (Club B).
- After Club A has selected Club B as its preferred amalgamation partner, the Boards of both clubs will negotiate and execute a legally binding agreement to amalgamate, known as a Memorandum of Understanding (commonly referred to as a MOU). The MOU deals with the legislative requirements for an amalgamation and other important commercial matters regarding the amalgamation.
- The clubs should undertake due diligence on each other to ensure that the amalgamation will be viable and beneficial to each club respectively.
- After the MOU has been executed, each club must convene separate general meetings of members to obtain the approval of members (by way of an ordinary resolution) for the proposed amalgamation. This will require a simple majority (50%+1) of members at both of the meetings to vote in favour of the proposed amalgamation. All full members of each club have the right to vote on the ordinary resolution notwithstanding that some members may be in classes of membership which under the club’s constitution do not have voting rights.
- Also, at its general meeting, Club B will need to amend its constitution (by way of special resolution) to establish a class of membership for the members of Club A.
- After the members of Club A and Club B have approved the amalgamation, an application is made to Liquor & Gaming NSW for formal approval of the amalgamation.
- After Liquor & Gaming NSW have provisionally approved the amalgamation (and assuming the due diligence is satisfactory), there are a number of commercial matters that the clubs must attend to. These matters include the transfer of Club A’s members, employees, assets (including land/leases) and contracts to Club B. All of those transfers will take effect from the completion date of the amalgamation.
- When the commercial matters are ready to be completed, the clubs must provide Liquor & Gaming NSW with five (5) business days’ notice of the proposed completion date of the amalgamation.
- On the completion date of the amalgamation, Club A’s members, employees, assets, contracts, liquor licence and in many cases, Club A’s liabilities will be formally transferred to Club B and the amalgamation is “completed”. From this date onwards, Club B is responsible for the management and operation of Club A’s premises as well as its own premises.
- After the amalgamation is completed, the corporate entity of Club A is voluntarily wound up, formally liquidated, or otherwise deregistered as a company.
However, in some amalgamations, there may be additional matters which both clubs must attend to.
What if your club is a club looking at an amalgamation?
We strongly recommend that clubs which are considering the possibility of an amalgamation contact us as soon as possible to discuss the proposed amalgamation and the steps which need to be undertaken in the particular amalgamation.
Our firm has:
- a thorough understanding of the laws regarding club amalgamations; and
- a commercial and practical approach to dealing with club amalgamations;
- extensive experience in club amalgamations;
- a proven track record in club amalgamations.
Pigott Stinson can assist you in ensuring that your club’s amalgamation is dealt with in a timely and legally compliant manner with a minimum of fuss and this will significantly reduce the possibility of any costly mistakes or delays occurring in the amalgamation process.
Pigott Stinson is a leading firm in club amalgamations and we have undertaken a significantly large number of club amalgamations for more than thirty years. Furthermore, each of the club solicitors have been involved in club amalgamations during their legal careers and have significant experience and expertise in club amalgamations and achieving the desired outcomes of clients.
Further Information and Contact Details
Should you wish to discuss any aspect of this Newsletter or want any legal advice about these matters, please contact any member of the Clubs team on 8251 7777 or by email: