Submission - Task 2 (Answers to purchaser questions)
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Feb 20, 2024
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TASK 2.1 HV FREIGHT PTY LTD PURCHASE OF VITE BOTTLERS FROM TOPSTER
INDUSTRIES LIMITED
Received instructions from Koa Zhang, the Chief Executive Director of HV Freight Pty Ltd, in
relation to the potential acquisition of Vite Bottlers. Questions answered below. Contract 1.
Is there an obligation on HV Freight to forward to Topster Industries Limited any moneys received from customers of Vite Bottlers after settlement, where these payments relate to Vite Bottlers’ services completed and invoiced before the date of settlement? As per clause 6.1, the debts that are owed to Topster before settlement are not included in, and are separate from the contract of sale. Topster is able to collect these moneys from customers, even after settlement, but they must not cause any unreasonable damage in doing so. 6.3 – HV Freight has the obligation to immediately pay Topster any money that is received in
such a way. 2.
Obviously HV Freight does not expect (nor intend) to default under any terms of the contract, but could you please briefly explain what are Topster Industries’ contractual rights if we were to breach any such terms? If HV Freight were to breach a contract term, as per Clause 16, Topster industries would service them with a written default notice – which would need to be complied with (particulars of the default notice are set out in 16.5). Topster would be able to sue HV Freight
for any unpaid balance of the price, or the stock value, or both. This could be without notice (16.2). As the party who has breached the contract, HV Freight would need to pay the vendor compensation plus any interest on money overdue (16.3). If HV Freight does not remedy their breach, then all the money under the contract will become payable (16.6). 3.
I have heard that Damien Smythe, a non-executive director of Topster Industries who has a lot of contacts with wine producers on the Mornington Peninsula has some interest in a local wine producer called Wild Wines Pty Ltd, which has a small bottling operation. Can we stop him from retaining that interest under the terms of our contract for sale of Vite Bottlers? I note that he is not named as a “key person” in the contract.
No, you are unable to stop Mr Smythe from retaining his interest in Wild Wines, even though he is a non-executive director of Topster. This is because he is not named as a ‘key person’.
A restraint of trade clause can only involve the key persons.
Also, unless a key employee is already subject to a restraint of trade in their existing employment contract, it is difficult to constrain them as a part of the sale of the business. Mr Smythe would need to voluntarily agree to a separate restraint.
4.
I understand from the vendor that the business is sold as a going concern so it is a GST free supply. Does the contract reflect this? What has to occur for this to be the case as finding another $900,000 for GST would be difficult for us.
Yes, the contract outlines that the sale of the business is considered GST free, so GST will not be payable if the conditions outlined are complied with. GC 9.1 states that the sale is the supply of a going concern (s 38-325, Debonne
) This will be upheld true as long as HV Freight is registered for GST at settlement. 5.
What can HV Freight do if the lessor takes too long to consider and consent to our
application for assignment of the current lease? As long as HV Freight have provided all information to Topster Industries, that a landlord may reasonably require about their financial resources and business resources (8.3), they have prepared the deed of transfer (8.4) and both parties have done everything reasonably required to also obtain consent of the mortgagee or charge (8.6) – then pursuant to clause 8.7, 5 business days before settlement, HV Freight can (by written notice to the vendor), extend the due date for settlement (but no exceeding 14 days).
6.
The agreed price is $9 million plus stock. I know that if there is any dispute about this stock an appointed stocktaker will deal with it. But can you advise us whether Topster Industries could force HV Freight to complete the sale if the stocktaker takes too long to reach their decision on a particular dispute? No, as per clause 4 – Topster Industries will not be able to force Flora Wellness to complete the sale. HV Freight must agree on the appointment 3 business days before the due date for
settlement, otherwise they may apply to the President of LIV to appoint a valuer.
7.
The bottling machines are used frequently and require constant maintenance. We have done an inspection of them and they appear to be in proper working order. What comfort do we have in relation to this under the contract? What rights do we have under the contract if a machine breaks down just prior to completion? Does Topster Industries have to tell us about it? As a vendor, Topster Industries has an obligation to maintain the equipment in the same state of repair as at the contract date until completion (10.1). Also, clause 3.4 sets out that Topster must deliver the equipment at settlement in the same state of repair, as at the Day of Sale and in proper working order unless otherwise agreed. Vendor warranty no.9 also reflects this obligation. If a machine breaks down, and Topster does not ensure that it is in ‘proper working order’ before completion – then it would constitute a breach of the contract. Per 16.3, Topster would be liable to pay compensation for any reasonably foreseeable costs, loss or damages in relation to the broken machine. They would also be liable to pay interest as per that clause.
HV Freight would need to serve them with a notice of default, as mentioned above. 8.
Topster industries has a number of qualified employees who work in the Vite Bottlers business that we would like to employ. How are employee entitlements for
annual leave, personal leave and redundancy dealt with under the contract? How are long service leave entitlements dealt with? All employee leave entitlements are paid or adjusted at the time of settlement. For the qualified employees which you would like to retain, their employee services will continue under your takeover.
In general, if you must notify Topster (in writing) 35 days prior to settlement, if you do not elect to recognise any transferring employee’s service with Topster – for both annual leave and redundancy purposes (12.5, 12.6).
If you do not notify or elect to not recognise – then as per 12.8, you must make some payments to each transferring employee: their accrued annual leave entitlements as at the settlement date and any entitlements to redundancy pay. Furthermore, as per 12.9 you will be responsible for all liabilities of those employees, arising out of their employment after settlement, including annual leave, personal leave and long service leave. Please see clause 5.4 for more details on how transferring employee entitlements will be apportioned and adjusted. Lease 9.
When does HV Freight, once it is the lessee, have to reimburse the lessor for outgoings? Does Rentlease Holdings have to wait until it actually pays such outgoings before it can ask HV Freight for reimbursement?
These outgoings are usually calculated on an area percentage basis and set out in the schedule to the lease. The lease mentions 100% of business outgoings. HV Freight has to reimburse the outgoings once it becomes a lessee under Rentlease (item 10). Before settlement, Rentlease’s lawyer should confirm in writing the date on which the vendor
has paid rent and outgoings. As per 5.2.1, Rentlease must pay the building outgoings when they are due, but if they require – HV Freight must pay when it is due, if they have received notice directly, and reimburse the landlord 7 days within a request of all building outgoings for which notices are received by the landlord. 10. If, after HV Freight becomes the lessee, the local council ordered that certain repair work be carried out to the factory building, is HV Freight or the lessor, Rentlease Holdings, liable to do this work? 3.2.1 – HV Freight must comply with all notices and orders affecting the premises which are issued during the term except. Unless, it is a notice or order that applicable legislation makes
the responsibility of the landlord. And HV Freight must permit Rentlease to enter the premises during normal hours, after reasonable notice is given – to do anything necessary to comply with notices or orders of any relevant authority (3.2.8). 11. Can you please explain briefly our obligations as to the state in which HV Freight should leave the factory and offices at the end of the lease. This is set out in clause 5 of the lease. The premises must be returned in a clean condition and all of HV Freight’s installations must be removed, and any relating damage made good. Otherwise, unremoved items will become Rentleases property. 12. Does the lessor Rentlease Holdings have any rights to bring the lease to an end if, for example, an accidental fire causes extensive damage to the leased premises?
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Can HV Freight ask for any compensation if the lease is brought to an end by Rentlease Holdings because of such an accident?
As per clause 8, if the premises are irreparably damaged and therefore unfit for use – then Rentlease is not obliged to reinstate the premises and if reinstatement does not start within 3
months or not likely to be completed within 9 months, then either party will be able to end the
lease by giving the other written notice. No, HV Freight will not be able to claim compensation for such a termination due to the extensive damages.