A Buy Sell agreement is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies, is forced to leave the business due to incapacitation or default, or chooses to leave the business. Let’s address specifically the issue of default.
Three years ago I was a partner in a 3-partner practice when, to our horror, we discovered that one of our partners had been ‘less than honest’ with many of our clients (due to the fact that this ex-partner’s criminal hearing is currently taking place, I, unfortunately, cannot divulge exact details of his actions). My first call, upon discovering his activities, was to my solicitor & I asked him to guide us through the process of the ‘default’, or breach.
In accordance with our agreement, a breach notice was drafted, signed & issued to the ex-partner within the requisite period of time, followed by an offer for his share of the practice. Our ex-partner immediately sought legal advice & communicated to us, via his solicitor, that he rejected our offer & our assertions of any breach.
The business was then formally valued by an independent valuer &, once again, a formal offer was made to purchase his share. The offer was again rejected.
The next step to remove this partner (so that we could continue to trade) was arbitration, and this is where the wheels fell off. We nominated our preferred Arbitrator & our ex-partner rejected that nomination. We then approached the Qld Law Society to nominate an Arbitrator, however, before arbitration could occur, both sides were required to indemnify the Law Society. We agreed to do this but our ex-partner refused.
Unfortunately our Buy Sell agreement did not address this situation &, in hindsight, omitting the Arbitration clause altogether, & agreeing to simply go straight to court, would have resulted in a far less expensive (& less stressful) outcome.
Please connect with me or phone me if you would like assistance with your Buy Sell agreement.