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In our previous newsletter which was distributed earlier this week, we discussed the need for clubs to enter into confidentiality deeds as part of the due diligence process.

From our newsletter, we have received some enquiries as to the due diligence process in respect of club amalgamations.

In the commercial world, there are many different views on what due diligence is and what the due diligence process involves.

However, in the context of club amalgamations, the due diligence process essentially involves a club undertaking a thorough and comprehensive review and appraisal of the business of its proposed amalgamation partner, including establishing its assets and debts and evaluating its commercial potential.

A common question is whether or not there is any set list of issues to be looked at as part of the due diligence process or will the due diligence vary from amalgamation to amalgamation.

The answer is a mixture of both.

There are a number of issues which are common to most due diligences such as financial due diligence, commercial due diligence and legal and compliance due diligence.

For example, as part of the financial due diligence, there are some standard documents and records which must be looked at when determining the financial performance of a club such as its profit and loss account, balance sheet and trading accounts.  However, there may be other reports and documents which need to be reviewed in order to obtain a true understanding of a club’s financial performance.

The financial due diligence review is generally carried out in conjunction with the club’s advisors.

In some circumstances, there may be some other matters which need to be reviewed as part of the due diligence.

For example, a club seeking amalgamation may be in the middle of a complex transaction (such as a property development) which will involve you asking a whole new set of questions which are unique and relevant to the transaction.

As you can appreciate from the above, the due diligence process can be extensive in nature and it can cover a wide range of subject matters

However, in this newsletter, I want to deal with some of the process involved with the real property (land) part of the legal and compliance due diligence.

The first step is to carry out a search at the NSW Land Registry Services (“the LRS”) in order to identify what land a club owns or leases.

This search is known as an Owner Inquiry Search at the LRS.

This search will list all of the titles where the club is recorded as the registered proprietor (owner of the land) or as the lessee.

This is particularly important for the continuing club because as part of the amalgamation, it will need to be the “bona fide occupier” of those premises with effect from completion of the amalgamation.

To become the “bona fide occupier”, the continuing club must obtain a legal right to occupy the dissolving club’s premises.  This is achieved by the dissolving club transferring its land to the continuing club or the dissolving club’s lease being transferred to the continuing club.

Once you have the Owners Enquiry Search, then it is possible to order searches of the titles listed and copies of any leases.

If the dissolving club in the amalgamation owns its land, it is important to determine whether or not the name recorded as the owner in the First Schedule is the same as the current name of the club.  Often a club has had a change of name over the years and the change of name has not been updated in the First Schedule.  There are also other cases where there are simply typographical errors in the name of the registered proprietor.  This is a good task for any club considering an amalgamation to undertake early on so any name change can be registered early in the amalgamation process and so all titles will show the correct name of the club’s legal entity.  This will also ensure there are no unnecessary delays when the clubs wish to transfer the land as part of the amalgamation.

Another thing to keep an eye out for is whether or not a mortgage is registered against the title.  This is usually a sign that the club has a loan facility with a bank which needs to be discharged as part of the amalgamation.

However, we often find that even though a club has paid the bank out and there is nothing owing to the bank, there is a mortgage still recorded on the title. This is usually because no one has asked the bank to prepare a discharge of mortgage to remove the registered mortgage.  Again this is a good thing to check out early on so it can be rectified and it will avoid any unnecessary delays in completing the transfer of land.

You will then need to look to see if there any other encumbrances listed in the Second Schedule on the each title.

There may be none; however often there are either easements, covenants or restrictions as to users registered on the title.

 

You need to get a copy of these dealings and seek legal advice as to the effect of any such documents.

Pigott Stinson has extensive experience in club amalgamation and we regularly act for registered clubs in club amalgamations.

We can assist clubs (continuing clubs and dissolving clubs) with conducting due diligence into their proposed amalgamation partners.

 

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