Institute of Certified Bookkeepers
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April 2016 Question of the Month - Sale of Business and FairWork Non-Compliance

  • 123 posts
  • # 112820

I have been engaged by a new client since October last year and I am working my way through a long list of problems with their data file. After attending the ICB conference, I thought I’d better take a look at payroll. It turns out there are a lot of issues with incorrect payslips, pay rates, underpaying, unpaid superannuation, etc. I’ve only just taken a look at these matters and the client has now advised that he is selling the business in 10 days. I happen to know the purchaser, and the purchaser is going to engage me to look after the bookkeeping after the sale. 

I know now that the current owner has been non-compliant with FairWork laws, I have spoken to him about it, and he says “it will be the new owner’s problem next week, I don’t’ care”. What do I do? I am in a small town and if I don’t advise the purchaser of these problems I may be in trouble.  But if I do advise then I am in breach of confidentiality.

We all know each other and so far the relationships are all good but I am afraid this will change everything when it comes out.

How do I handle this situation?



Edited at 25 May 2016 11:12 PM GMT

  • 123 posts
  • # 112991

Well, you’ve got all the conference topics in one scenario! Non-compliance with FairWork, sale of a business, conflict of interest and confidentiality issues…

Firstly, you have to report to the current business owner in writing as soon as possible all that you have picked up that is incorrect or non-compliant with their payroll, even if you are not yet sure of the scope of the problems and do not have time to go into the detail of each employee’s pay issues. You can urge him to report these issues to the purchaser immediately, so that full disclosure is made. If he chooses to do nothing, at least you have advised about the situation in writing.

You may want to advise the purchaser of these issues - but of course you cannot, because as you have rightly said, that would be a breach of confidentiality. This is tricky, because once the business is sold to the new owner, they may well be angry that you did not inform them of the issues, when you know them. There may be an expectation on their part that “you will look after them”. If you have your notes and report to the owner in writing you can at least prove to the new owner later that you did advise them to address the issues before the sale of the business, and that it is not your responsibility to advise the potential buyer of any issues.

You can hope that the new owner will respect the fact that you upheld your professionalism and confidentiality in the situation.  You may need to point out to them the code of conduct you are bound by, which includes not only confidentiality but acting in the best interests of your client until the engagement is completed.

On the other hand, the purchaser of the business should be conducting a proper process of due diligence and investigating the business they plan to buy. So, if they don’t do this and therefore don’t pick up the issues and the seller does not disclose, then the responsibility also rests with them.

The buyer is immediately liable for any FairWork issues related to employees. The buyer can choose to take legal action against the seller if full disclosure was not made. But the buyer cannot assume that FairWork would hold the previous owner liable for any issues once the sale has gone through.

In an ideal world, you would stop working for either party as soon as you knew there was a potential conflict of interest, and do your best to ensure that your engagement by the new owner would still continue. However, this may not be realistic; because it’s a small town, there may not be someone else handy to step in and handle the situation easily; and also it may be substantial income to you that you can’t easily disregard. We would recommend you write to both parties and let them know of the potential conflict of interest, (without disclosing details to the purchaser), and ask them how they would like to handle the situation, suggesting three-way discussions between all parties so all are involved in the management of the transition period.

If the sale goes through without these matters being disclosed to the new owner, then we would recommend that you then report the same issues to the new owner, and at that point you can show the new owner that you had provided information to the previous owner.

Remember, maintain professionalism at all times and do not take on responsibility yourself for matters that legally and rightly belong to the business owner.

References



Edited at 24 May 2016 01:05 AM GMT by Helen (MODERATOR)

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