3 minutes reading time (646 words)

The problem with PDS contracts - John Grant

The problem with PDS contracts - John Grant

John Grant of Goodman Grant Solicitors explains the difficulties that NHS orthodontists may encounter when the time comes to sell their practice…

It is often the case that the majority of NHS orthodontists will have a Personal Dental Services (PDS) agreement rather than a General Dental Services (GDS) contract, which, unfortunately, can make it difficult for a contractor to sell.

This is because PDS contracts are time-limited; at present, the longest contracts are being renewed for three years. While LATs are likely to grant this, there is nothing obliging them to do so. Indeed, if an LAT were to decline a renewal request, there would be nothing an orthodontist could do.

The second issue is that, unlike GDS contracts, PDS contracts cannot be transferred  using the partnership route . Since 2006, NHS practices have been bought and sold by introducing a partner to the contract with the seller subsequently retiring – resulting in a  smoothish transition from one principal to the next. As this is simply unavailable for PDS contracts, on the face of it they are unsalable.

In 2006, there was a change in the law that allowed dentists to incorporate their businesses. After years of uncertainty in 2013, NHS England introduced its incorporation policy – effectively making incorporating possible – if by no means guaranteed. For orthodontists, this created the opportunity for the sale of their contracts: by transferring the practice’s assets, including the NHS contract, to the limited company. Then, by selling the shares in the company  the value of the practice could be realised.

Nowadays, however, the LATs’ attitudes towards incorporations have changed. More and more often, they are requesting tangible benefits – and the focus tends to be on the patients. Typically, their requests manifests as a request for extended opening hours; a recent case saw an incorporation application denied because the practice refused to commit to more than an extra hour a week, showing how stringent the LAT can be in this regard.

Of course, assuming the LAT does agree to the incorporation in principle, the problems for the contractor will not suddenly cease. At this stage, the LAT will produce a Deed of Novation – which operates to transfer the NHS contract to the limited company. Included in this document are two sections of which practitioners must be particularly aware.

The first is that the LAT will require a guarantee from the contractor that the contractor will personally guarantee the performance by the limited company of the NHS contract. This does not represent a problem whilst the contractor holds the shares in the limited company – it places them in no worse position than they were prior to incorporation. Complications arise, however, after the sale of shares, due to the way in which the deed is drafted unless amended the personal guarantee will continue even after the contractor has sold their shares.

Secondly, a Deed of Novation will include what is known as a change of control clause, which subjects any transfer of shares  of 10% or more in the Company (which obviously will be the case on a sale)  to the approval of the LAT. This essentially puts the decision as to whether the principal can sell in the LAT’s hands – and if they were to refuse it would be extremely difficult to challenge that decision.

 

John Grant of Goodman Grant Lawyers for Dentists - a NASDAL member

For more information call John Grant on 0113 834 3705 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

www.goodmangrant.co.uk

A NASDAL and ASPD MEMBER

 

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