When it comes to buying or selling a care business, there are several considerations, including the type of sale, CQC registration and the role of the registered manager. Jade Kent from the Healthcare team explains in more detail.
Asset vs share sale
The main differences between a share sale and an asset sale are as follows.
In a share sale, the buyer acquires the shares of the company that owns the trade and assets of the business. With an asset sale, the buyer acquires the assets both tangible (property, land, machinery and stock) and intangible (intellectual property and goodwill) which make up the business, through a newco or another buyer entity.
The pros of an asset sale for a buyer are that you can chose which assets and liabilities (if any) you acquire and can limit your exposure to unanticipated liabilities. The cons are it is a slightly more complicated process as we have to assess how to transfer each of the contracts in place, they are likely to have different transfer provisions, and we will need to negotiate a transfer of the property, we will have to consider the TUPE regulations (which concern the transfer of employees), and we will have to deal with things such as apportionments and book debts. Your accountant will also need to advise on the VAT structure, apportionments between business and property and capital allowances as well as provide input to the asset purchase agreement and disclosure letter.
The pros of a share sale are the transaction is often simpler from a more administrative perspective in the sense that as you are acquiring the company and everything within it, TUPE is unlikely to apply, and the contracts usually transfer over ‘as is’, subject to any change of control provisions. The main con is you acquire the business subject to its past and current liabilities i.e. you take the company ‘warts and all’. This means that a share purchase agreement is usually a more complicated document with more warranty and indemnity protection included in favour of a buyer. There is usually also a completion accounts mechanism pursuant to which accounts are prepared as at the date of completion and (most usually) actual levels of cash, debt and working capital are compared against anticipated levels with an adjustment to the price accordingly. Your accountants would normally input on this completion accounts process and additional costs would be incurred in preparing and agreeing these additional accounts.
Transfer of contracts
Share sale – If you opt for a share sale, the contracts generally transfer over ‘as is’ – unless there is a change of control clause within them. This means there is a clause which states if there is a change of control of the contracting party, then the other party i.e. the local authority, has to consent to the transfer of the contract or the contract may prohibit change of control outright. Change of control clauses are fairly common in local authority contracts and sometimes in larger contracts such as the ones used for the care planning software.
Asset sale – If you opt for an asset sale, the contracts will have to be assigned/novated across to you from the seller. The seller (the individuals/company) which is currently named within the contract, often has to get consent from the supplier before they can transfer the contract over. In some cases, assignment/novation is prohibited, and the supplier will make you start a new contract with them (if you wanted to continue the service).
It is worth at an early stage obtaining copies of all key contracts i.e. local authority, employment contracts, any key software contracts and any key supplier contracts, to enable you to assess if there is an assignment/novation clause present.
For both options we tend to draw up a spreadsheet which lists; parties to the contract, date of the contract, termination provisions, any change of control /assignment/novation provisions and any applicable timescales.
Some suppliers i.e. local authorities can take a long time to provide the consent needed and you cannot operate unless the contract is transferred to you, therefore it is imperative that the position for each contract is inspected at the beginning of a transaction.
CQC Registration
What happens when a seller sells all their shares in a CQC regulated company?
Where ownership of a company which runs a care home is to change by way of a share sale, the Seller(s), or sometimes the Buyer, must notify the CQC of the change of ownership. This usually takes place after completion of the transaction.
Further information on this can be found on the CQC website.
What happens when a seller sells all their assets in a CQC regulated company?
Where a Buyer is acquiring the business and assets of a care home business via an asset sale, they will need to notify the CQC prior to completion of the transaction.
This can be achieved in several different ways, depending on your existing and end goal structure. The main three options are:
- If you have an existing CQC regulated entity (with the same registration parameters as the business, you are purchasing) you can add the business you are buying onto your existing registration as a new location.
- If you have an existing CQC regulated entity (with the same registration parameters as the business you are purchasing) but you do not want to add the business you are buying onto your existing registration i.e. you want to ringfence the new entity away from your current business, you can set up a new company and you are then treated as a new entrant and you have to start the CQC process from scratch.
- If you don’t have an existing CQC regulated entity, then you must register as a new entity and start the CQC process from scratch.
In our experience option 1 is a little quicker than options 2 and 3 as you are already a proven entity, but it can still take approximately 16-20 weeks for the process to be completed. For options 2 and 3 the process generally takes longer, approximately a few weeks longer providing you supply all the information needed promptly. This is a rough guide as CQC often work on their own timescales!
Both the Buyer and the Seller must apply to the CQC around the same time (ideally together) and the CQC will link the applications.
Once the CQC application is in the system it will be processed and the CQC will inform the Buyer, the Seller and the legal representatives on what needs to happen on the day of completion.
Registered managers
The existing registered manager can:
- Continue their registration under the incoming provider;
- Cancel their manager application; or
- Remove the location from their registration i.e. if they will remain with the outgoing provider.
If a new registered manager will be in place from completion, the new manager must submit an application to register with the CQC as a fit and proper person (if not already registered) and their details should be input into the changes to registered details form (link above) if it is a share sale. If you are going for option 1 on the asset purchase route, then you need to tick the appropriate box on the add a location form. For options 2 and 3 on the asset purchase route you can indicate the registered manager’s details on the new provider form. These changes will need to take effect from when you take over the business, and so the relevant application will need to be submitted in good time beforehand.
Nominated individual
If the nominated individual is changed, the change to registered details form needs to be completed to notify CQC of this. This is the person employed as a director, manager or secretary of the body who are responsible for supervising the management of the carrying on of the regulated activity.
If you are selling a CQC registered business
If you sell a CQC registered business, you need to tell CQC (in advance if it is an asset sale and after completion if a share sale):
- details of the Buyer and the location the sale concerns; and
- the date of the transfer.
If you are selling part of the business but will continue to provide regulated activities, you need to apply to change your registration and if you are selling your entire business and will stop providing regulated activities you must cancel your CQC registration.
Split exchange and completion
As the CQC process can take some time, you can use something called a split exchange and completion. It means the legal and accounting work is done and the transaction is ‘exchanged’ and will be subsequently completed once certain conditions are met (for example the obtaining of the required CQC approvals). At exchange sometimes a deposit is paid and at this point you are legally obliged to progress to completion, subject to a few agreed scenarios where either side can pull out i.e. the property burns down, or a similar material adverse change occurs. Once the CQC process is completed the deal ‘completes’ and the business is yours. This does add an extra layer of complexity to the transaction, mainly around the criteria when parties can pull out between exchange and completion, but it does offer some comfort to both sides that the deal will go ahead. It may be that you want to skip this step and just wait it out until the CQC registration part is done.
The Healthcare team at Stephens Scown are well versed in care sector asset and share purchases and sales, please do contact Jade Kent on j.kent@stephens-scown.co.uk or 07548 224516 if you have any questions.