Recently, we represented the buyer in a transaction in which it was purchasing (amongst other things) an operating business, the assets of which included several business names.  Although the buyer did not want to use the existing names of the business, the process of changing the names was to be implemented over a period of time, during which time the existing business names would be phased out.

Apart from the assets, documents and other transfers that the seller was required to deliver to the buyer on completion, the seller was responsible to deliver to the buyer on completion:

assignments of each of the Intellectual Property Rights and all forms necessary to record the change of their ownership (including, in respect of the Business Names, the number or code issued by the Australian Securities and Investments Commission that is required to facilitate the transfer of the Business Names from the Seller to the Buyer);” (underlining added for emphasis)

The process for transferring a business name is a simple and straightforward one:

the current owner of the business name logs in to its account on ASIC Connect and links its business name to its account with its ASIC corporate key;

after completing certain processes, the current owner of the business name receives a transfer number from ASIC, usually within 24 hours;

the transfer number is given to the new owner which the new owner uses to register the business name in its name.

Without the ASIC corporate key, no transfer number is generated by ASIC and the transfer of the business name cannot be completed.

In this particular transaction, the buyer was advised by the seller on the day of completion that the ASIC corporate key had been misplaced and that although a replacement one had been ordered from ASIC, it had not yet been received and that therefore no application had been (or could be) made for the transfer of the business names.  As a result of this, the seller was unable to deliver the transfer/token number to the purchaser as required under the contract.

The seller’s advisors were of the view that completion should still take place on the basis of:

an undertaking from the seller’s accountant to deliver the transfer/token numbers as soon as they are received from ASIC; and

the seller granting the buyer a license of the business names until the transfer/tokens are delivered.

Although this approach appeared commercially sensible and reasonable, section 601DD of the Corporations Act makes it an offence for an Australian corporate entity to carry on business under a name that is not registered to it at settlement.  There is no exception for trading under license.

As the buyer was not able to conduct the business without being in breach of the Corporations Act, completion on that day had to be cancelled, and it was rescheduled for a week later.

This experience is important in at least two respects:

corporate keys should be maintained in a safe place at all times; apart from the need to have it in order to transfer a business name, it is also required for other purposes eg the online lodgement of various ASIC forms; and

the use of a business name without it being registered in the name of the business owner is a criminal offence under the Corporations Act.