Mergers, acquisitions and amalgamations

A merger, acquisition, amalgamation or other similar change of control can result in a significant change for the organisations involved. Many or all aspects of governance, financial management and service delivery may be affected.

It may also affect your organisation’s contract with us, and eligibility to continue to receive funding. (The contract may be in the form of Funding Deed and Program Level Agreement, or a Human Services Agreement.)

This is why you’re required to notify us of a merger, acquisition, amalgamation or other similar change of control in your organisation.

We strongly recommend your organisation:

• notifies us and consults with us as far in advance as possible, so that you understand how the change of control may affect your contract with us
• obtains the necessary independent legal and business advice to ensure you understand how it may affect your organisation and its operations
• carries out the necessary due diligence before you make any legally binding commitments.

Clarification of the terminology

‘Merger’, ‘acquisition’ and ‘amalgamation’ are terms used to describe the transaction whereby two or more organisations combine their operations. However, they’re not legal terms with a precise or technical meaning. In fact, different people may use different terms to describe the same transaction.

Regardless of the term used, these transactions involve a change of control, which means a change in the direct or indirect beneficial ownership or control of an organisation.

Some examples of a change of control involving a merger, acquisition or amalgamation are:

1. Organisation A gains control of Organisation B, with the ability to decide the composition of its governing body and management, as well as shape its financial and operating policies.
2. Organisation A becomes the wholly owned subsidiary of Organisation B. Organisation A retains its governing body and continues to operate under the control of Organisation B. Organisation B may have a majority representation in the governing body of Organisation A.
3. Two or more organisations (A and B) join to form a new organisation (C) where the assets and liabilities, rights and obligations of Organisations A and B are then owned by Organisation C. Organisations A and B are dissolved or become dormant.
4. Organisation A transfers its operations, assets and liabilities, rights and obligations to Organisation B. Organisation B establishes a new identity with a new leadership team. Organisation A is dissolved or becomes dormant.
5. Organisation A takes ownership of the operations, assets and liabilities, rights and obligations of Organisation B. Organisation B is dissolved or becomes dormant.

Your obligations under the contract

To comply with the terms and conditions of your contract, you must notify us, in writing, of any change of control that materially affects your ability to provide the services you are contracted to deliver. (This is implied by clauses 3.3a and 3.4d of the Funding Deed, and stated in clause 8.1 of the Human Services Agreement – Standard Terms.)

This means you must notify us if your organisation is involved in a merger, acquisition, amalgamation or similar change of control (regardless of whether you’re Organisation A, B or C in the examples above).

The change of control may result in automatic termination of your contract. That’s why it’s important to obtain independent legal advice, carry out the necessary due diligence, and inform us of your intention in advance.

Carry out the necessary due diligence

Changes of control may have implications for your organisation’s eligibility to be contracted by us and continue to receive funding.

For this reason, it’s important you carry out the necessary due diligence before making any legally binding commitments involving a change of control in your organisation.

This includes ensuring all parties to the change of control understand the changes and how their organisations will be affected.

It’s to your advantage to notify us in advance of a change

If your organisation is proposing or negotiating a change of control involving a merger, acquisition or amalgamation, discuss it with your DCJ contract manager as far in advance as possible.

By talking to us about your plans, you’ll be in a better position to fully understand how the change may affect your eligibility to be contracted by us and continue to receive funding.

It’s best to have this discussion before the proposed change of control has been endorsed by your organisation’s governing body, and especially before you make any legally binding commitments.

Let us know:

• the nature of the arrangements
• the names of the parties involved (if you’re allowed to disclose them)
• which of the other parties are organisations contracted by us
• whether the arrangement involves establishing a new legal entity with its own ACN and/or ABN.

In particular, we need to know whether:

• the objectives of your organisation (as stated in the governing document) will change, or
• your organisation will be winding up its operations, and if you intend your contract to be transferred to another organisation.

In the event a change of control results in your organisation becoming dormant or your organisation’s contract with us being terminated, you may request to transfer your contract to another organisation (the substitute party).

This is legally known as a ‘novation’ of the contract. It requires you to sign a Deed of Novation with the substitute party and us.

Otherwise, if a new entity is to be created as a result of the change of control, your existing contract may be terminated and a new deed signed with the substitute party

A request to transfer your contract to another organisation doesn’t automatically guarantee we’ll consent to the request. We may instead choose or be required to go to the sector and procure the contracted services from a new organisation through a formal tender process.

Responsibilities of the substitute party

When you sign a Deed of Novation, you transfer the assets and liabilities, rights and obligations of your contract to the substitute party, making them responsible for complying with the contract.

This includes:

• having relevant policies and practices in place to comply with the provisions of the contract
• using the funds paid by us only for the purposes agreed in the contract
• achieving the specified performance requirements and the outcomes agreed in the contract
• reporting performance
• reporting annual accountability
• handling contracting complaints
• managing and disposing of assets purchased using the contract funding
• obtaining consent from us to subcontract the services specified in the contract.

As part of their due diligence, it’s important for the substitute party to thoroughly review the relevant contracts, related schedules, applicable Program Guidelines or Program Specifications and information about funded contract management, to fully understand its obligations in relation to the contracted services.

Your organisation and the substitute party are also responsible for working together to ensure a smooth transition of the contracted services, and providing us with assurances of stable, uninterrupted service delivery to the clients affected.

To notify us of a merger, acquisition, amalgamation or similar change of control, you must complete a Notice of a change of control involving a merger, acquisition or amalgamation form.

We recommend completing and submitting a Notice before making any legally binding commitments involving such a change of control in your organisation.

The form assists you to explain:

• the reasons for, and nature of the change of control
• how the services agreed in the contract are affected
• the measures in place or planned to address the effects
• existing and planned subcontracting arrangements.

You must answer all questions truthfully and sign the declaration at the end of the form.

The form is the mechanism by which you adhere to the notification requirements agreed to in the contract. In addition, the completed form and signed declaration serve as assurance to us that you carried out the necessary due diligence to understand the nature of the transaction and how it may affect your contract with us and the funding you receive.

Once you’ve completed all required details and signed the declaration, please submit the form by email to your DCJ contract manager.

We strongly recommend you obtain independent legal advice in relation to the Notice before submitting it to us.

Reviewing your circumstances

When you notify us that you’re planning or have been involved in a merger, acquisition, amalgamation or similar change of control, we review your circumstances and consider:

• the amount of information you provided to clearly explain the arrangements
• any concerns we may have about the performance of your organisation and the others involved
• whether there’s any change to your organisation’s objectives (as stated in the governing document) and how this aligns with the funded program services you’re contracted to deliver
• whether we consider the change of control poses any risk to delivery of the funded services.

In addition, if you requested to transfer your contract, we consider:

• whether the substitute party is already contracted by us
• whether engaging the substitute party will cause any conflict of interest
• any concerns we may have about the capacity and/or capability of the substitute party
• whether the organisation objectives of the substitute party (as stated in their governing document) align with the funded program services.

If we require additional information to make our decision, we’ll contact you or any relevant party involved in the change of control. This means we may contact the substitute party if you requested to transfer your contract to them.

Notifying you of our decision

We’ll let you know if and how your contract is affected, in writing, within 4 weeks of receiving a completed Notice from you.

This timeframe is an estimate, subject to variation, and is dependent on the specific nature of the change of control. We’ll notify you if we require more time to consider your circumstances.

You may appeal our decision, in writing, in which case you must explain the grounds of your appeal. However, we reserve the right to make the final decision, and whether to accept or reject your appeal.

Reasons we may terminate your contract

We may choose to terminate your contract if we reasonably believe the change of control materially affects your ability to perform your obligations agreed in the contract. We may also terminate your contract without providing any particular reason.

Determining whether to novate your contract

If you requested to transfer your contract, we’ll let you know if we consent to it.

A request to transfer your contract doesn’t automatically guarantee we’ll consent to the request. We may choose or be required to go to the sector and procure the contracted services from a new organisation through a formal tender process.

If we consent to a contract with the substitute party, it may be subject to certain additional or varied terms and conditions. If so, they’ll be explained with our decision.

If we determine that the substitute party is ineligible for a contract with us, we’ll give you the reasons.

For further information and free advice about mergers, acquisitions and amalgamations:

• speak to your peak organisation
• contact Justice Connect.

Please contact your DCJ contract manager if your organisation:

• is planning a merger, acquisition, amalgamation or other change of control, or
• has any questions about your obligations in relation to a change of control.

In addition, we strongly recommend you obtain independent legal advice in this regard.