The following Article is from Bruce Gotterson’s regular article in Club Life
Growth through Amalgamations and Mergers
In last month’s column we discussed some of the issues that arose out of the recent round of Club Director Institute seminars on Growth through Amalgamations and Mergers held at various venues around NSW.
In this month’s column I would like to talk about another important issue that we discussed at the seminars-the Memorandum of Understanding (MoU)
We discussed the requirement under clause 7 of the Registered Club Regulation (Regulation) that clubs proposing to amalgamate must enter into a MoU in respect of the amalgamation. This is a mandatory requirement. The Independent Liquor and Gaming Authority will not approve an amalgamation or the transfer of the club liquor licence under section 60 of the Liquor Act unless the clubs have entered into an MoU and a signed and dated copy of it has been lodged with the Application.
We discussed that the Regulation requires the MoU to deal with (or include) the following:
The manner in which the premises and other facilities of the dissolved club will be managed and the degree of autonomy that will be permitted in the management of those premises and facilities.
A list of the traditions, amenities and community support that will be preserved or continued by the amalgamated club:
- Intentions regarding the future direction of the amalgamated club.
- The extent to which the employees of the amalgamated club will be protected.
- Intentions regarding the following assets of the dissolved club: any core property (within the meaning of section 41J of the Act) of the club; any cash or investments held by the club; and any poker machine entitlements allocated under the Gaming Machines Act 2001 in respect of the premises of the club;
- The circumstances that would permit the amalgamated club to cease trading on the premises of the dissolved club or to substantially change the objects of the dissolved club.
- An agreed period of time before any action regarding assets referred to above can be taken by the amalgamated club.
We also talked about how the MoU provisions in the Regulation do not contemplate or address the commercial aspects of an amalgamation.
- In addition to the requirements of the Regulation, the agreement must incorporate a number of additional commercial provisions such as: termination; due diligence; sunset date; timing of meetings; control during the amalgamation process (employees, bank accounts, caps on expenditure etc.)and loans to cover possible insolvency. These type of matters can be included in the MoU or dealt with separately in a Deed of Amalgamation.
We also discussed how important it was, as is the case with any legally binding commercial document, to make sure that the MoU clearly sets out each club’s rights and obligations in a clear and precise way and that each club fully understands the terms and the meaning of the MoU.
The law of contracts generally provides that if the words in a contract are clear and unambiguous then the words mean what they say even if the result is a bad deal for one of the parties –this is particularly so in the case where 2 commercial entities (such as clubs) are parties to the contract. It is only if the words are ambiguous that the court is able to look at the parties’ intention and at the background to the deal, which may shed more light on what the parties actually meant.
To avoid potentially costly confusion, it is very important that each club engage solicitors familiar with the club amalgamation process to prepare the MoU in order to make sure that it accurately reflects what the clubs have both discussed and agreed upon as the basis for the amalgamation.
I will write about some of the other issues discussed at the seminars in future columns.
For more information contact Bruce Gotterson on b.gotterson@pigott.com.au
Click on the image below to see the article as it appeared in Club Life October 2015.
This article is intended to provide general information in summary form on a legal topic, current at the time of publication. The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.