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Guide to practice mergers: The legal process of merging

A step-by-step guide to the legal issues that merging practices need to consider. By Lynne Abbess and Puja Solanki.

Each practice should undertake a full due diligence exercise of the other (Picture: iStock)
Each practice should undertake a full due diligence exercise of the other (Picture: iStock)

Over the past few years, we have seen a huge increase in the number of GP practices wishing to merge. However, a merger should never be regarded as something that can be ‘sorted’ over a cup of coffee. There are significant legal steps surrounding any merger, which practices may ignore at their peril.

Early advice

It is assumed the partners from each practice will already have sat down together and discussed the key principles to govern the new arrangement.  

Before contemplating proceeding further, each side should seek early advice from its accountants to ensure the proposal makes good financial sense. If the financial advice is generally positive, the next step is to run the proposal past both practice solicitors to ensure there are no legal impediments that might later throw a spanner in the works.

NHS England should be your next port of call. While it might theoretically be possible under GMS to present the merger to NHS England as a fait accompli it would be a brave practice which choses to do so.  

Once these preliminary steps are out of the way you can start to put your plans into action.

The process of merging

Many practices believe that, in terms of the legal arrangements, only a new partnership agreement is required. However, this is only one aspect of the merger and the same legal principles that apply to commercial mergers apply to practice mergers.

The ‘best practice’ format to follow is as follows:

  • Stage 1: line up those matters which may not be straightforward.
  • Stage 2: exchange the business transfer agreement.
  • Stage 3: line up the remaining (more straightforward) issues in preparation for completion and complete those issues legally required to be in place at the time of completion
  • Stage 4: Completion of the merger
  • Stage 5: Deal with post-completion matters

Stage 1: Matters that may not be straightforward

Due diligence:
It is vital for each practice to undertake a full due diligence exercise of the other. This will be an investigation into the other practice’s accounts, employees, NHS contract, suppliers, equipment, premises, patient list, stock etc. to ensure that all is in order and shed light on any liabilities that may otherwise be taken on, unless they can be excluded from the merger.  

Staff:
Consider any differences in the staff contracts and take advice about the means of smoothing out any variations post-merger. Agree in principle whether any staff may need to be made redundant – and, if so, at whose cost this should be.

  • More information about staff issues involved in a merger.

The transfer of your NHS contract(s):
In a full-blown merger (as opposed to a ‘takeover’) the objective would be to add the name of at least one partner from each practice to the contract of the other practice. In the case of a takeover, this could be a one way exercise, with a partner from the ‘dominant’ practice being added to the other contract (but not the other way around).   

For GMS practices the contract variation is (in most cases) unchallengeable and simply requires the service of a notice in standard form on NHS England. In the case of a single-handed contractor, not less than 28 days’ notice must be served. In the case of a partnership, other partners can be added following the service of the variation notice – no specific notice period is applicable.

Because a PMS contract is ‘personal’ to the named contractors, NHS England’s consent is required for any variation. The timescale for this is not prescriptive and may take some time.

Irrespective of which contract is held, it is advisable to contact your local area team at an early stage to ascertain their requirements for your proposed arrangements.

Premises:
Agree the future arrangements for the use of all existing premises. This includes whether any disposals are anticipated, which might take more time to resolve and could incur substantial dilapidation costs or a premium to terminate a lease early. You should also address the basis of occupation of both of the practices’ sites.  

For the sites to be retained, the practices need to consider:

  • updating their title deeds (and mortgage if applicable)
  • seeking the consent of the landlord to assign any lease.
  • entering into a Declaration of Trust to ensure the relationship between the owners/named tenants and the occupiers is clarified.

Medical defence insurance:
Check at an early stage that cover will be available for the merged practice and at what cost. Disclosure of claims may be a vital factor in this respect.

CQC registration:
A new CQC registration will be needed in the name of the new partnership. Contact the CQC early on about this.  

Negotiating merger documents:
This involves the business transfer agreement and partnership agreement. The business transfer agreement governs the commitment to proceed with the merger and what happens at the point at which the merger takes place.

It should deal with the mechanics of the transfer/amalgamation of the NHS contracts, contribution of capital, warranties and/or indemnities from one practice to the other, apportionments of liabilities and costs prior to and after the merger, and the transfer of employees to the merged practice.  It will also need to contain provisions regarding contribution to the capital of the merged practice together with the arrangements for occupation of premises.

The partnership agreement will govern the relationship of the partners going forward and will be effective from the day of the merger. It may well be that one (or both) practices have current and up-to-date deeds that could be adapted into the merger deed. However, ideally the practices should start from scratch to ensure that they have a solid and thorough document that governs the operation of their merged practice.   

Stage 2: Exchange of the business transfer agreement

This stage makes the arrangement legally binding. Attached to the business transfer agreement will be the agreed form of the partnership agreement and any other relevant agreement to be entered into at completion, for example premises documentation.

Once exchange of the business transfer agreement has been achieved you can proceed safely to implementing the steps required to enable the merger to be effective.

Stage 3: Preparation for completion

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"), all employees must be given reasonable notice of the merger. They must also be properly informed and consulted on the transfer of their employment to the new partnership.

The practices’ Information Commissioner registration will need to be updated for the new practice.

Actually submit/implement those issues which are legally required to be in place by the time of completion, for example the variation of your contract, the opening of the bank account and any other issues which have been ‘lined up’ in principle prior to exchange.

Stage 4: Completion of the merger

Complete the merger as detailed in the business transfer agreement, together with any other legal documents.

Stage 5: Post-completion matters

All staff should be issued with new contracts as soon as possible and no later than two months following the merger.

Suppliers and contractors will need to be notified of the merger and formal letters will need to be dispatched.

  • Lynne Abbess is a partner and head of primary care team and Puja Solanki is a senior solicitor in the primary care team at Hempsons.Lynne is also Medeconomics’ legal expert. Ask Lynne your questions
Legal checklist
  • Undertake a comprehensive due diligence exercise.
  • Address any variations in staff contracts and consider whether redundancies will be necessary.
  • Talk to NHS England to ascertain requirements for transferring contracts.
  • Agree issues relating to premises, including updating leases, clarifying owner/tenant partner relationships and issues relating to property disposals.
  • Check and update medical defence insurance
  • Negotiate the business transfer agreement and new partnership agreement.
  • Give staff adequate notice of the merger, following TUPE regulations.
  • Update Information Commissioner registration and CQC registration.
  • Issue staff with new employment contracts following the merger.

 

Guide to Practice Mergers

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