Business succession plans and fine print

Posted on June 28th, 2017

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A scenario from a real case demonstrates how much it pays to ensure that a well thought out business succession plan is in place. Three veterinary surgeons operated a business in partnership.  One of the surgeons was diagnosed with cancer.  Steps were taken to dissolve the partnership and for his share of the business to be sold to the remaining partners. At the suggestion of a financial planner, the surgeons had all agreed to take out insurance with MLC “Live Cover Super”.

The cover was for 2 different types of event: death or total and permanent disability. A deed of dissolution of the partnership was drafted which provided that on receipt of the insurance proceeds, two thirds of the proceeds would be paid to the surviving partners to help them buy out the departing partner.
Insufficient attention was given, however, to the drafting of the Deed and also to the nature of the insurance. The partner made a claim for total and permanent disability which was not accepted (he was still working when the claim was made). He later successfully made a claim for terminal illness benefits which were paid to him directly.

Due to the uncertainty in the wording of the Deed, the fact that the partner made an unsuccessful claim for payment satisfied his obligations under the Deed. As a result, the remaining partners were left substantially out of pocket. They paid the departing partner for his share of the business and received none of the insurance proceeds.

 

Felicity Wardhaugh, Special Counsel at Mullane & Lindsay Solicitors, NewcastleFelicity Wardhaugh is Special Counsel at Mullane & Lindsay Solicitors and practises extensively in  Wills and estate planning, Commercial dispute resolution and other litigation.  If you require any assistance in these areas please contact Felicity Wardhaugh to arrange a consultation or contact our Newcastle office. 

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