Buying or selling a business: What is a Section 52 Statement?

A section 52 statement refers to a disclosure statement that vendors must provide purchasers when selling a small business in Victoria. The statement is a legal requirement under section 52 of the Estate Agents Act 1980(Vic). The formal title for section 52 statement is ‘statement by a vendor of small business.’ 

What information does a Section 52 contain? 

The section 52 statement must outline the financial performance of the business over the last two years and the financial performance for the current financial year up to the most recent quarter. 

The statement must be in the form prescribed in Schedule 1 of the Estate Agents (General, Accounts and Audit) Regulations 2008. The statement is usually prepared by the seller’s accountant with the assistance of the seller and their lawyer. 

Is it necessary? 

There is a legal requirement for the seller to provide a section 52 statement to the prospective buyer for the sale of a small business priced under $450,000. It must be provided either before the contract of sale is signed or before the seller accepts a deposit. 

The goodwill, plant and equipment, and fittings of the business are taken into consideration when calculating this price. The stock and intellectual property of the business do not form part of this calculation. 

The only exception is if your business holds an active licence or permit under the Liquor Control Reform Act 1998; you do not need to provide a Section 52. This makes bars and restaurants with active liquor licences exempt from providing one. 

Consequences if Section 52 is not provided or if it is false or inaccurate 

If a section 52 statement is false or inaccurate or not given to the prospective purchaser before they sign the contract, then the purchaser has the right to avoid the contract within 3 months of signing and get their deposit back. 

This right to avoid is only available where the purchaser hasn’t already taken over the business and settled the sale. 

A seller cannot escape their obligations to provide a section 52 statement by inserting a term in the contract of sale, as the law requires a seller to prepare a statement.