Australia: What if you were selling your privately-owned business and you had a serious OH&S incident?

Last Updated: 22 July 2012
Article by Nick Miller and Dan Trindade

Most Read Contributor in Australia, November 2017

Key Points:

An OH&S incident not only hurts employees, but can derail the sale of a privately-owned business and destroy years of effort.

Generally speaking, privately-owned businesses under-invest in occupational health and safety. What if you were embarked upon a once-in-a-lifetime sale of your privately-owned business and something went horribly wrong on the OH&S front? How would this impact on your sale process and your endeavour to maximise the value from your many years of hard work building up and investing in your business? And more importantly, how can you prevent employee fatality or very serious injury in the first place, and the resulting problems for your employees, their families, and your business?

The pressures on privately-owned businesses when it comes to OH&S compliance...

Many privately-owned businesses take a reactive approach to OH&S compliance, only complying after an OH&S incident puts them in the spotlight.

Added to this pre-existing tendency is the effect of the sale process. Owners will be looking to present the business' financials in the best light, and so may reduce capital and operating expenditure for a period of time ahead of the start of the sale process. This could lead to some OH&S corners being cut.

... and how this affects the sale price

Privately-owned businesses will usually face a credibility issue when undertaking a sale. Trade and private equity buyers expect lesser compliance, poorer systems, and accordingly increased risks.

From an OH&S perspective, this means that these buyers will factor in to the sale price their estimate of the costs required to bring OH&S compliance up to their (higher) standard. A private equity buyer is less able to undertake its own fix, so it will probably build in a higher discount.

It is critical for private business owners to realise the different expectations in areas like compliance that trade and equity buyers bring to a sale process, so they can avoid the discount usually applied to privately-owned businesses.

What are the risks of non-compliance with OH&S laws?

The first thing to remember is that a business' status as privately-owned, "small" or "medium" is not a defence to OH&S prosecution and liability.

The potential for OH&S to have a significant impact on your private-owned business (and you personally) has increased in recent years. For example, in Victoria changes to the Occupational Health and Safety Act 2004 (Vic) have increased penalties and heightened the risk of conviction for directors. These risks will be further elevated when Victoria adopts the harmonised national OH&S laws that have already been adopted in most States and Territories.

A workplace death in Victoria could result in a fine of up to $1,267,560, conviction of the employer company under OH&S legislation and, potentially, conviction of the employer company's directors (which could lead to a significant penalty or even imprisonment). As well, any serious OH&S incident is likely to significantly increase future Workcover premiums.

What happens when there's an OH&S incident?

The first thing to happen will be that the relevant workcover authority (in Victoria, WorkSafe) will issue a "prohibition notice", directing that production in the affected area be stopped.

Then, the workcover authority will investigate the incident and, likely, issue an "improvement notice", requiring remedial work to be done, equipment to be replaced, or other steps to be taken in order to make the plant safe.

Any prosecution arising from the investigation would be likely to start within 12 months of the incident occurring, but could take between 18 months and 3-4 years to resolve. If the incident is a serious one (eg. involving a fatality or serious injury) it is almost certain that a prosecution will occur, usually of both the employer company and the also senior management or directors who were responsible for the work being performed that led to the incident.

These immediate consequences (and the prospect of further in the medium to longer term) will create significant uncertainty for any sale.

How does an OH&S incident affect the sale of a privately-owned business?

A sale process is likely to run for anywhere between three and nine months (with current market conditions generally lengthening this period).

Let's assume a business has attracted some interest and indicative (and very attractive) offers have been made. Due diligence has concluded and one or more parties has begun to negotiate the sale agreement, ahead of submitting a final offer. At this stage, buyers are likely to think that they will be able to fix OH&S compliance up to their standards. So these buyers will make an allowance for transition costs in their pricing, but won't factor in the costs of any serious incident.

Then, the OH&S fatality or serious injury occurs.

As noted, the plant (or part) is likely to be stopped under a prohibition notice and an improvement notice issued shortly thereafter. The seller will bear the cost of complying with the improvement notice.

Perhaps the only improvement required will be construction of an appropriate guard, or the updating of work instructions or supervision processes. But what if more is needed? This could lead to a more extended period of shut down, before the expense of acquiring a new machine (for example) is incurred to fix the problem. Obviously, staff morale in the business will be seriously affected, and there may be union involvement.

Overall, the fact that the business is now subject to a regulatory process will create uncertainty and all planned sale process timelines will likely be pushed out. The business' reputation may be damaged and there may also be a contractual (and revenue) impacts, especially if the business has government contracts (even if the business is one step removed from direct supply to government).

Given these dynamics and issues, it is unlikely a sale will proceed without:

  • a significant discount to the purchase price; and/or
  • the buyer requiring the seller to provide security for a potentially adverse outcome (for example, a fine) and the costs of litigation. This security may be provided by means of a significant retention from the purchase price, so that the seller does not receive this in full until the OH&S matter has been fully resolved, possibly some years down the track.

The buyer and the seller have opposing interests: the buyer is keen to settle any litigation and move on – usually agreeing to plead guilty to some or all of the charges and proposing a suggested penalty to the Court. However the seller will likely want to defend litigation and minimise any penalties and the prospect of any convictions for the (then) directors or management.

Overall, the business will be under heightened regulatory scrutiny. It will likely face an increase in its capital expenditure outlook, beyond what a buyer would have foreseen before the incident occurred.

This suggests that the sale of the business is likely to be at serious risk with, at a minimum, a significant reduction in price and a likely hold back of significant portion of the price for some period.

How could this be avoided?

OH&S compliance should be part of the general preparation undertaken for a sale. Value is best maximised with good preparation, which can often take 2-3 years.

So, as part of the general preparation, an OH&S audit should be undertaken by a suitably qualified OH&S consultant. It will be important to follow through (and document follow through) on the recommendations emerging from any audit. Ideally, a further audit should be undertaken 12 months down the track, to test compliance at that time, following implementation of the original recommendations. Hopefully, the further audit will be clear.

If your OH&S auditor is engaged by your lawyers for the purpose of your lawyers giving you legal advice, then any report the auditor prepares will be privileged and you won't have to produce it in an investigation, prosecution or litigation. If it only identifies issues that can be and are fixed, and a subsequent audit confirms this, then you can waive this privilege if you want to show the proactive steps taken to comply with OH&S obligations.

It is critical that a business being prepared for sale has a proper OH&S compliance plan, which means having appropriate systems and processes to identify and manage risks, including employee induction, visitor training, job safety analysis, supervision and monitoring, incident reporting and monitoring and consultation. This will also reduce the likelihood of an incident occurring and of being prosecuted for less serious OH&S breaches. If a prosecution does occur, it will help you with mitigating penalties and the risk of conviction of directors or managers.


Taking these steps will assist private business owners to protect and maximise value when they look to sell. Even if a sale does not proceed, the investment in compliance is not wasted, as there are still adverse consequences for a continuing business if a serious workplace incident occurs. Either way, employees' safety will be protected.

Good OH&S preparation will enable the business to present as materially more attractive than other privately-owned businesses, reducing the discount typically applied to such businesses. A well prepared seller will also be able to better defend the value of the business.

Once again, preparation equals value.

You might also be interested in ...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions