Succession planning for dentists

Whether in the final stages of your career or you’re just starting out, the need for a succession plan and exit strategy is equally important.

You may be a sole practitioner, partner within a partnership or own shares in an incorporated dental practice, or it may be that you are contemplating the purchase of your first acquisition. And while leaving the business may seem a long way off, it is important that provision is made for a future sale or in the event of a sudden death.

While admittedly, a succession plan is something that will most probably not be at the forefront of your mind while you’re busy running your practice portfolio, by planning now for the future, you will save yourself a lot of potential cost and legal wrangling further down the line.

Who will take over?

It is very important to specify who will take over your practice if you decide to sell, or in the event you should unexpectedly pass away. In running a practice, you will invest a lot of time and money building up the business, and will also probably have the goodwill loyal and long-standing group of patients, so it is essential you know your successor will build on your hard work. This will also make the transition smoother for the business and patients after you leave.

One way to do this is by bringing an Associate in well in advance, who has an interest in one day acquiring his own practice. If the Associate is brought in in good time they can become integrated within the business, learn how the practice operates and build a rapport with patients. This will reduce some of the issues which can arise when a stranger takes over a practice and will put your mind at rest that the practice will be in safe hands moving forward.

Contractual considerations

Another major consideration in succession planning, for NHS practices in particular, is the NHS contract. Even if a practice is mainly private, there could still be an NHS children contract, in which case consideration has to be given as to how this contract will be affected. At present a practice may have a General Dental Services (GDS) contract or a Personal Dental Services (PDS) contract. GDS contracts can be transferred as part of the sale of a dental practice, but PDS contracts cannot. If you are considering selling your practice and have a PDS contract, you need to be aware that the process will involve transferring it to a GDS contract which involves an application to the NHS.

If you are a sole trader, or a partner, and hold a GDS contract, the process is not as straightforward as transferring the contract straight across to the buyer. NHS England prohibits GDS contracts from being directly transferred, so a temporary partnership will need to be set up between the retiring dentist and the buyer. Once the sale has completed, notice must be given to NHS England that a new partnership has been formed. Within a certain period of time following the sale, the seller will then formally retire from the partnership, and again notice must be given to NHS England. The GDS contract is then left in the name of the buyer.

If you are an incorporated company and hold a GDS contract, the easiest way of transferring the GDS contract is a sale of the entire issued share capital to the buyer. It is important to note that if this is the way in which the contract is transferring, there are certain change of control provisions within GDS contracts held by limited companies which require NHS England’s permission for the contract to be transferred.

Whether to exit completely…?

Your initial plans may be for you to sell your practice and then retire completely – although one good way of ensuring the goodwill of the practice is protected is for a seller to continue to work at the practice as an Associate following completion and slowly phasing out their involvement.

If the seller is happy to do this and the buyer is happy for them to stay on, an Associate Agreement should be drafted as part of the sale process. If the seller is adamant that he wants to retire immediately following the sale, the practice could send a joint letter from the seller and buyer explaining to the patients that the practice has been sold. However, this may affect the goodwill of the practice if the seller abruptly leaves, so it is worth considering the sale of your practice a good while before you actually retire.

If you are a sole practitioner with a GDS contract considering utilising the 24 hour retirement policy post-completion, it may also be worth noting that you are specifically not entitled to this benefit as a sole practitioner, as there is no-one to take over your GDS contract and therefore the contract is effectively brought to an end and can be put out to tender.

Restrictive covenants

In a sale agreement, it is common that restrictive covenants are included, which prevent the seller from working at another dental practice within a certain radius, and for a specific period of time, after the sale has completed. There also tend to be provisions preventing the seller soliciting patients, suppliers and employees. These sort of provisions will even apply when a seller stays on as an Associate after the sale and subsequently leaves a number of years later.

The main reason for these provisions is protecting the goodwill of the practice, but they can be very restrictive on the seller depending on post-completion plans. If a seller wants to practice at a local hospital or work as a locum following the sale, the restrictive covenants can prevent them from doing so – therefore it is important for the seller to carefully review any such restrictions within the sale agreement.

The importance of a Will

Furthermore, it is important you have a Will in place, to make provision in the event of an unexpected death. It is important that clear instructions are given to contact the Local Area Team (LAT) within a strict time frame following the death.

If a sole practitioner has a GDS contract and dies unexpectedly, the contract will be terminated 28 days following the death, unless their personal representatives contact the LAT notifying them of the death. They can then extend the period from 28 days up to six months. If clear instructions are not given to the personal representative, it can result in the deceased’s estate not being able to benefit from the goodwill which the deceased built up in the practice.

It is vital that the importance of notifying the LAT is stressed to the personal representative, especially if it is a family member, as dealing with the deceased’s business may fall to the bottom of the list when that family member is grieving. It is important that this extra time is secured, as the estate can decide how best to dispose of the business.

Where you are a partner in a practice, it is worthwhile making provisions in the agreement  to cover circumstances where a partner dies, as well as making specific provision within your own Will. The partnership agreement may give the remaining partners the option of purchasing the deceased’s share of the practice, or may provide that they are to co-operate with the sale of a deceased’s partner’s interest in the practice. Either way, it creates certainty as to what will happen following the death of a partner and can make the process much easier for the family and personal representatives of the deceased.

The 28 day period in which the LAT has to be informed of the death still applies where the deceased was in partnership, however it is possible for the remaining partners to undertake to perform the deceased’s UDAs, which can take the pressure off all involved while a decision is made as to how best to deal with the deceased’s share of the partnership.

Amanda Maskery is former Chair of the ASPD in the UK, and a Partner and Head of Dental at Sintons in Newcastle upon Tyne. Contact her on amanda.maskery@sintons.co.uk or 0191 226 7838.