UK: Preparing Your Hotel Company For Sale

Last Updated: 23 October 2013
Article by Jessica Nugent

Selling a hotel company is no small project, whatever the size of the hotel. Firstly, the commercial terms of the deal must be agreed with the purchaser and the sale and purchase agreement and other related documents will be much negotiated between the parties (and their solicitors). However, it is the due diligence process that will often take up most of the seller's time. The purchaser will, understandably, want to investigate the company and the hotel business that it is buying to ensure that everything is in order and it is not unusual for legal due diligence questionnaires to be dozens of pages long. Sellers often find that so much management time is taken up with responding to these enquiries that the business suffers, which is detrimental to both seller and purchaser. Therefore, it is of great advantage to get your house (or, rather, your hotel) in order in advance, before time becomes of the essence.

Being able to present a clean, transparent and well organised company will reassure a purchaser and may help to reduce the post-completion warranty risk borne by the seller. Considering the following matters when preparing your hotel company and its subsidiaries for sale will be the first step in achieving a smooth transaction.

1. Corporate Governance

Are your company's statutory books in good order? Ensure that they are complete and up to date, including the registers of members, transfers, allotments, charges, directors and secretaries. Also, check that all Companies House filings are up to date, and in particular that neither the annual return nor the accounts are overdue.

2. Banking and Finance

A purchaser will want details of the company's bank accounts and borrowings. Make sure you have copies of the facility letters for any loans or overdraft facilities as well as any mortgages, debentures and other charges given by the company, even if they will be discharged at completion. If you do not have copies of these documents, you should be able to obtain such from the lender.

3. Trading Arrangements and Business

Ensure that your hotel company has current licences for all its activities including, where necessary, a premises licence, civil marriage licence, PRS music licence and any others that are relevant. Are these all paid and up to date?

The purchaser will usually want to see copies of all contracts to which the company is a party and collating these is a time consuming process, so it is wise to start early. A good place to start is to make a list of all hire purchase, equipment finance, leasing and other similar agreements, services, utility, supply agreements and any others. Then find copies of all the written agreements and any variations thereto.

4. IP and IT

Intellectual property rights are not always important assets of hotel companies, but they should still be considered. Do you have a registered trademark? If so, ensure the registration has not expired and that you have a copy of the certificate. If the hotel has a

website, who operates this and who owns the domain name and the rights in the web design? Do these need to be transferred to the company prior to its sale?

A purchaser will also require details of your computer system, including the hardware and the software elements. Compile a list of all computers, servers and other hardware used by the company, noting especially if any is not located on the company's premises. A list of all software programmes, such as operating systems, booking systems, client databases and payroll systems should also be prepared and, if possible, copies of the licences relating to such software should be collated.

5.  Insurance

A purchaser will no doubt want to see copies of all the company's insurance policies and you should ensure that the company has up to date insurance covering all usual risks (including employer's liability insurance, public liability insurance and insurance over the company's premises). If any claims have been made, contact your insurance broker and ask for a status report on them.

6. Health and safety

Ensure that the company's health and safety policy is up to date and that correct procedures are in place for carrying out that policy. Check also that the company's accident book is up to date. If any investigations or reports have been made by any local government or regulatory authority, details will have to be produced, together with information as to how the company has remedied any deficiencies.

7. Employees

A buyer will want to see a complete schedule of all employees of the company. Information usually provided on such a schedule will include the name, date of birth, start date, salary, job title and full or part-time status of each employee. You will also be asked for right to work documentation for non-UK citizens; details of employees who are leaving and of those to whom offers of employment have been made; copies of employment contracts; a copy of any staff handbook; details of all benefits offered to employees and of any bonus schemes; and details of any pension scheme operated by the company. There are many laws and regulations governing an employer's obligations to its employees in the UK and the buyer will be particularly concerned to ensure that the company has complied with all of them. Making sure that all employees have been provided with written terms of their employment is a good place to start.

8. Property

Finally, a purchaser will want to investigate title to any property owned or used by the company. It would be helpful to draw up a schedule of properties, stating whether the properties are freehold or leasehold and, if they are leasehold, details of the number of years outstanding on the lease and the name of the landlord.

Nothing highlights how many loose ends and unresolved issues a company has quite like selling it. However, collating the documents and information suggested above will give you a good head-start in tying up those ends, which in turn should make the due diligence and disclosure processes much more painless for both you and the purchaser.

Conclusion

Nothing highlights how many loose ends and unresolved issues a company has quite like selling it. An experienced legal team will guide you smoothly through the pre-sale process to a successful completion and may help you to maximise the eventual sale price and to minimise your post-sale warranty obligations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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