Key Roles and Purpose in Small Business Restructuring

Within the context of a small business restructure, two principal entities are involved in the asset transfer:

• The Transferor: This entity presently conducts the business operations and holds ownership of its business assets. Its designated function is the conveyance of the business and its associated assets, including intellectual property and business contracts, to another entity.
• The Transferee: This entity is the recipient of the business and its assets. It assumes responsibility for the operational management and asset ownership of the transferred business.

Understanding Boettcher laws 328-G Transfer Deeds

The fundamental purpose of a 328-G Transfer Deed is inherently multifaceted, serving to formalise and streamline the business restructure:

• Formal Documentation: It formally codifies the legal transfer of a business and its assets from the Transferor to the Transferee, ensuring a clear record of the transaction.
• Tax Relief Qualification: It ensures that the restructure satisfies the stringent criteria for specific tax relief within Subdivision 328-G of the Income Tax Assessment Act 1997 (Cth), thereby enabling a “rollover” of assets without incurring immediate tax consequences. This is a critical aspect for small business tax planning.
• Clear Responsibilities: It precisely delineates the terms, conditions, and respective responsibilities of both parties throughout the asset transfer process, thereby mitigating potential ambiguities and facilitating a smooth business transition.

The Restructure Process

The small business restructure process encompasses several critical phases, each characterised by specific conditions and operational mechanisms designed for efficient asset transfer.

Conditions for Completion of Asset Transfer 

For the restructure to proceed, certain preconditions must be satisfied by an agreed-upon completion date. These typically include, but are not limited to:

• The Transferee’s formal acceptance of the offer to rollover the business assets in accordance with Subdivision 328-G of the Income Tax Assessment Act 1997 (Cth).
• All facets of the Business and Business Assets transfer strictly conforming to the terms articulated within the proposed transfer deed.

Should these conditions remain unfulfilled, the involved parties may mutually agree to extend the completion date or undertake alternative measures to ensure compliance, safeguarding the business restructure objectives.

Small Business Rollover Mechanism

A pivotal aspect of an Asset Transfer Deed pertains to the small business rollover. Both the Transferor and the Transferee are required to acknowledge that:

• The asset transfer constitutes an integral component of a broader business restructure.
• The Transferor qualifies as a ‘small business entity’ for the pertinent financial year, a key criterion for tax rollover eligibility.
• Both entities are classified as belonging to the same ‘Family Group'( within the meaning of Schedule 2F to the Income Tax Assessment Act 1936 
• Both entities formally elect to apply the rollover provisions of Subdivision 328-G, which permits the transfer of assets without triggering immediate capital gains tax.

Rollover Mechanics: Implementing the Asset Transfer

The practical implementation of the rollover entails specific actions for business asset conveyance:

• Agreement to Transfer: The Transferor legally assigns and transfers all proprietary interest in the business and its assets to the Transferee, effective as of the completion date. The Transferee formally accepts this asset transfer.
• Encumbrances: The transferred business and business assets must be unencumbered by any security interests (as defined in section 12 of the Personal Property Securities Act 2009 (Cth) unless explicitly stipulated otherwise within the deed, ensuring clear title.
• Title and Risk: Ownership and all associated risks pertaining to the business and assets are transferred from the Transferor to the Transferee at the moment of completion. The Transferor bears the responsibility for the physical delivery of the assets to the Transferee technology.

Obligations and Responsibilities in a Business Restructure

Both parties bear distinct obligations throughout the restructure, which are systematically categorised according to the timeline relative to the completion date, ensuring a structured business transition.

Before Completion (Pre-Completion Duties)

The Transferor’s responsibilities prior to completion typically encompass:

• Maintaining the operation of the business as a going concern in its customary manner until the completion date.
• Granting the Transferee reasonable access to business records and assets for the purpose of due diligence.
• Ensuring the transfer of all employees associated with the business to the Transferee.
• Procuring all requisite consents, approvals, and authorisations for the transfer of the business and its assets.
• Assigning all pertinent Intellectual property rights utilised within the business to the Transferee.
• Upholding confidentiality regarding all business information and trade secrets.
• Adhering to any mutually agreed-upon restraint period (e.g., 5 years) precluding competition with the transferred business.

At Completion (Actions at Completion)

On the designated completion date, the official asset transfer is formally executed. Key actions at this juncture include:

• The Transferor delivering all necessary documentation, business assets, and records to effectuate the transfer, including assets free of encumbrances, assigned contracts, requisite consents, and all information essential for the Transferee to operate the business.
• The Transferee remitting the agreed-upon payment for the assets.

After Completion (Post-Completion Matters)

Post-completion responsibilities are designed to ensure operational continuity and address any residual matters following the business restructure:

• Business Records: The Transferee is obligated to retain business records for a minimum period of 7 years and to provide the Transferor with reasonable access thereto if required. Furthermore, the Transferee indemnifies the Transferor against any loss or damage to these records.
• Data Migration: Electronic and physical data comprising the business records and assets will be migrated to the Transferee as expeditiously as practicable following completion.
• Trade Debts: The Transferee will receive all payments pertaining to the business and is obligated to remit to the Transferor any payments received that relate to the period preceding completion.

Warranties and Indemnities in Business Restructures

The Asset Transfer Deed incorporates general legal guarantees (warranties) from both parties, crucial for risk management in a business restructure:

• Each party warrants that it possesses the legal authority and corporate power to enter into and fulfill the obligations stipulated in this Deed.
• The Transferor specifically warrants its legitimate right to transfer the assets, that said assets are free from encumbrances, are in sound working order, are fit for their intended purpose, and that all provided information is accurate and complete.
• The Transferor undertakes to indemnify the Transferee against any loss (e.g., costs, damages, liabilities) arising from a breach of these warranties, any breach of agreement, tax liabilities, or claims initiated by third parties.
• The aggregate liability of any party under this Deed is generally limited to the purchase price of the assets.
• All warranties provided within the Deed shall remain in effect subsequent to the Completion Date.

Specific Tax Provisions for Small Business Restructures

The tax implications are of paramount importance for a small business restructure, particularly concerning Subdivision 328-G rollover and GST:

• Subdivision 328-G Rollover: Both parties agree that the Deed facilitates a rollover that satisfies the eligibility criteria under this Subdivision, thereby enabling the transfer of business assets without triggering immediate capital gains tax. This typically necessitates both entities being members of the same ‘Family Group’ and formally electing to apply these provisions.
• Goods and Services Tax (GST): Unless explicitly stated otherwise, the Deed is exclusive of GST. Should GST be applicable to any supply made under the Deed, the recipient is responsible for remitting the GST amount to the supplier. For more information on GST, refer to the Australian Taxation Office.
• Duty: The Transferor typically bears the liability for any stamp duty or analogous taxes associated with the transfer of the business and its assets.
• General Tax Obligations: The Transferor is responsible for the payment of all taxes related to the business and its assets up to the completion date. The Transferee warrants its GST registration status and its capacity to supply the business and assets.

This article provides a comprehensive overview of the operational framework of a small business restructure transfer and the required information to formalise this into a deed.

If you are considering implementing a small business restructure, our team of specialist commercial lawyers are here to help you protect your business and tax obligations every step of the way. Contact us today for a confidential discussion about your situation.