Liquor Licensing and changes of directors and shareholders of Licensees

Quite often we are engaged to assist with the purchase of a licensed business which usually occurs by way of a sale by a licensed vendor of its business assets to a purchaser which is accompanied by an application to transfer the liquor licence to the purchaser.

Where the licensee is a corporation, an alternative method exists for effecting the sale of the licensed business, which involves the sale of shares in that corporation to the purchaser and a change of directors of that corporation.  This method does not require an application to transfer the liquor licence (as the liquor licence remains with the licensed corporation) but will require compliance with the Liquor Control Reform Act 1998 (Vic) (Act) which provides as follows:

1. Section 103 (regarding change of directors of a licensed entity):

• If a person ceases to be a director of a body corporate that is a licensee, the licensee must notify the Commission in writing within 14 days after the person so ceases;

• A body corporate that is a licensee must not appoint a person as, or allow a person to become, a director of the body corporate without the approval of the Commission under Section 104 (Penalty: 5 penalty units).

2. Section 103A (which deals with the change of “associates” which includes shareholders) provides:

• A licensee must within 14 days after the occurrence of either of the following events notify the Commission in writing of the event;

• That a person has ceased to be a shareholder; and

• That a person has become its associate. (Penalty: 5 penalty units).

3. Section 104 (regarding the approval of directors) provides, amongst other things:

• A licensee may apply to the Commission for the approval of a person to be a director of the licensee;

• The Commission must give a copy of an application under section 104 to the Chief Commissioner of Police;

 

• The Chief Commissioner of Police may object to the application on the grounds that the person is not a suitable person to be director of the licensee; and

 

• Further provisions regarding the timing of the notification of objections and extension to time.

 

On that basis:

 

4. The resignations of the vendor’s appointed directors of the licensed corporation will need to be notified to the Victorian Commission for Gambling and Liquor Regulation (VCGLR) within 14 days after they have resigned as directors (ie usually within 14 days after settlement of the sale of shares);

 

5. The transfer of shares of the licensed corporation will need to be notified to VCGLR within 14 days after settlement;

 

6. The appointment of the new directors as nominees on behalf of the purchaser  cannot occur without the VCGLR’s approval under section 104 (1) of the Act.   

 

Accordingly, any sale documentation will need to accommodate the notification requirements under sections 103 and 103A and be conditional upon the purchaser’s nominee directors obtaining VCGLR’S approval.

 

We can assist with the sale and purchase of licensed businesses, notifications to VCGLR and applications for approval.

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Do we need a Shareholders Agreement?

This is a question we are often asked by shareholders of newly established and existing proprietary limited companies.  The simple answer is, a properly drafted Shareholders Agreement can help shareholders avoid potential disputes over the way in which a company is operated, by proving an agreement between the shareholders on predominately commercial issues not covered by a company’s Constitution.

Upon incorporation a company is regulated by the Corporations Act 2001 (Cth) (Corporations Act), its regulations and to the extent a company has one, its Constitution.  However, the Corporations Act and the Constitution primarily focus on the legal, regulatory and corporate activities of the company and do not do deal with business objectives including the commercial expectations of the shareholders.



In this regard, shareholders should ask themselves:

• What are the business activities and purposes of our company?
• How long will the company operate and build up the business before selling the business and providing a return on each shareholders’ investment?
• Which shareholders are entitled to be appointed directors and thereby have a say in the day to day management of the business?
• What decisions may only be made by shareholders as a group, rather than the directors?
• How do shareholders with minority shareholdings have an impact in the decision making process, rather than having their wishes ignored by majority shareholders?
• Should shareholders as a group restrict the sale or transfer of shares outside the current group of shareholders?
• How are the funding requirements of the business to be met? Debt, equity or both?
• What happens when a shareholder who is active in the business dies or suffers a permanent disability?  How can the other shareholders acquire the shares of the affected shareholder?
• Should shareholders be restrained from being involved in other businesses which complete the business of the company?

In answering these and other related questions, the shareholders should be able to formulate the commercial issues to be agreed to in their Shareholders Agreement.

Although Shareholders Agreements are not vital to the success of a company’s business, especially where there is a small number of like-minded shareholders, they are generally recognised as greatly assisting the objectives of the shareholders as owners and operators of the business.

The content of the Shareholders Agreement will follow a generally accepted structure developed over the last 30 or so years of commercial legal practice, with additional specific clauses to deal with the company’s own circumstances.

It should be noted that despite what shareholders may agree, the Corporations Act will in most cases take precedence over the terms of a Shareholders Agreement.

The Constitution, on the other hand, may be overridden by a Shareholders Agreement to the extent of any inconsistency. However, ideally the Constitution should be amended to incorporate the terms of the Shareholder Agreement.

Nevett Ford Melbourne’s Commercial lawyers have a wealth of experience in the preparation of Shareholder Agreements and advising companies and shareholders alike.

Please contact Andrew Bini if you would like further information.

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