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NHS angle can affect how pharmacies change hands

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NHS angle can affect how pharmacies change hands

The method of sale was covered in solicitor Pei-Li Kew's previous article. In brief, if the pharmacy is operated through a company, a buyer will have the option to buy the business through a share transfer (buying the shares in that company) or an asset transfer (buying the business and its assets from the company). 

There are various pros and cons with each option, but in the context of a pharmacy business sold as an asset transfer, NHS consent to the change in ownership will need to be obtained before completion of the transfer. 

For pharmacies sold by way of a share transfer, NHS consent is not usually required, although on occasion the need to obtain NHS consent may still feature – for example, where the buyer wishes to ‘hive-up’ the business into its existing operation rather than run it through the company acquired.

A share transfer will not be possible if the business is operated by a sole trader or a partnership, and on occasion it may not be practicable to buy a pharmacy through a share transfer – for example, if the selling company owns multiple branches and only one branch is being sold.

Where NHS consent is required on the sale of the pharmacy business, it is important to get the timing right. As NHS consent will take time to obtain, buyers usually submit the change in ownership application to the NHS at an early stage in the transaction, rather than waiting for an exchange of contracts to take place. This allows the NHS process to run alongside the legal work for the business transfer. Buyers will often require an exclusivity commitment from a seller before submitting NHS applications (as their submission is likely to place the intended transaction into the public arena). 

Once granted, the NHS consent will generally need to be implemented within six months. While it should not take six months to conclude the legal work, buyers and sellers need to keep on top of the transfer process to ensure it moves along in a timely fashion.

For pharmacies in England, at least 30 days’ notice of the business transfer date has to be given to the NHS. There is a risk (hopefully small) that the legal transaction may break down after the buyer notifies the NHS of the completion date. Although the pharmacy business isn’t going to be sold, the seller’s NHS contract could still be transferred into the buyer’s name as a result of the transfer notice having been given. The seller would need to ensure they can require the buyer to withdraw the completion notice given to the NHS before the given transfer date.

As NHS consent will take time to obtain, buyers usually submit the change in ownership application to the NHS at an early stage

As with any business coming to the market in 2021, buyers and sellers will need to consider the extent to which the pandemic has had an impact on the financial performance of the business. 

A particular consideration for buyers and sellers of pharmacies will be the question of how to account for Covid support funding provided by the NHS during 2020. At the time of its provision, the NHS indicated that the funding should be regarded as cash-flow assistance and may need to be repaid. At the time of writing this article, the NHS in Wales has begun a process of recovering this funding and an announcement by the NHS in England is awaited. 

Buyers and sellers should therefore consider whether (and how) to account for any future repayment liability in the contract of sale and purchase. Buyers will be concerned not to have to shoulder the cost of future repayment while sellers will be keen to ensure that they do not see an upfront reduction to the price paid for the business in circumstances where the NHS may subsequently write-off the Covid support payments. It is important that both parties take advice in this area from experienced legal and accounting advisers. 

Charles Russell Speechlys has produced a guide for buyers and sellers of pharmacy businesses which contains more detail on these points and others to bear in mind. A free copy can be found on the pharmacy page of www.charlesrussellspeechlys.com 

This is a general overview and we recommend that independent legal advice is sought for your specific concerns. 

Pei-Li Kew is an associate in the Pharmacy Team, Charles Russell Speechlys LLP  PeiLi.Kew@crsblaw.com

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