After the club which has called for expressions of interest in an amalgamation has selected its proposed amalgamation partner, the clubs will proceed to negotiate the terms of a Memorandum of Understanding (“MOU”).
Whilst the clubs negotiate the terms of the MOU, each of the amalgamating clubs should undertake a due diligence process on the other club.
Whilst there is no legal requirement to carry out a due diligence process, it is highly recommended that clubs undertake this process.
In this regard, due diligence will:
- provide clubs with a “full picture” regarding their proposed amalgamation partner (including their trading and financial positions); and
- enable directors to discharge their obligations of acting in the best interests of the club by allowing them to make an informed decision as to whether or not to proceed with a possible amalgamation;
- provide clubs with facts and information which may be useful when seeking members approval for the amalgamation.
In the majority of cases, the continuing club will want to carry out due diligence on the dissolving club for a number of reasons, including but not limited to understanding the true financial and trading position of the dissolving club (such as the liabilities of their amalgamation partner).
However dissolving clubs should also undertake due diligence to satisfy themselves that the continuing club has the capacity (financial and otherwise) to meet all of the agreed commitments under the MOU.
The due diligence process will involve each club handing over confidential information to the other club in order for the clubs to be able to make a proper and informed assessment as to whether or not they should proceed with the proposed amalgamation.
Whilst most MOUs will contain provisions dealing with the non-disclosure of confidential information, it is strongly advised that the amalgamating clubs have a legal agreement to protect any confidential information that is handed over as part of the due diligence and amalgamation processes.
Therefore it is strongly advisable for the clubs to enter into a Confidentiality Deed before any confidential information is made available to the other party and definitely before, the MOU is signed.
A properly drafted Confidentiality Deed will protect the club disclosing confidential information in a number of ways including without limitation making it clear:
- what is confidential information;
- that the information is only being released for the specific purpose of allowing the clubs to assess whether or not the clubs should proceed with the amalgamation;
- that only restricted persons (such as directors, club managers and advisors) can be shown confidential information and only for the stated purpose (being the proposed amalgamation);
- that if an amalgamation does not proceed then all information must be either returned or destroyed at the request of the disclosing party;
- that if a receiving party breaches the deed by releasing any confidential information, then the disclosing club has a right of action against the receiving club.
We also recommend that continuing clubs seek to negotiate an exclusivity period whereby the dissolving club is legally prohibited from entering into discussions for a proposed amalgamation with other clubs.
In the absence of a legal agreement containing an exclusivity period, there is no legal restriction on dissolving clubs negotiating with multiple possible amalgamation partners.
The exclusivity period ensures that the dissolving club cannot negotiate with multiple clubs during the exclusivity period and it also provides the continuing club with some certainty that it will not be gazumped by another registered club during that exclusivity period.
If an exclusivity period is agreed by the parties, then provisions dealing with exclusivity would also need to be included in the Confidentiality Deed.
Like all legal documents a club needs to seek legal advice before entering into any form of Confidentiality Deed. Of course Pigott Stinson can assist with the preparation and review of such documents.
Further Information and Contact Details
If you wish to discuss the contents of this Newsletter or would like us to assist with the preparation of any service agreements, please contact any member of the Clubs team on 8251 7777 or by email:
This Newsletter is produced by Pigott Stinson. It is intended to provide general information only. The contents of this Newsletter do not constitute legal advice and should not be relied upon as legal advice. Formal legal advice should be sought from us in respect of the matters set out in this Newsletter. Liability limited by a scheme approved under Professional Standards Legislation.