When it comes to selling a business, the process can be
profitable and complicated. Nevertheless, it is critical for both
parties to the transaction to understand how misleading or
deceptive conduct interacts with business sale contracts. Whether
the contract concerns an asset sale, equity sale or merger, caution
must be taken where the contract provides for:
An assurance by the seller as to the veracity of financial
records;
- The production of those financial records;
- Employee information;
- Due diligence clauses; and
- Broad warranties with respect to the future
If the seller resiles from a representation made or withholds qualifying information to induce purchase, the buyer can rely on the Australian Consumer Law regime (schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL)– in particular, sections 18 and 29. Sellers should also be aware of section 4(2) of the ACL, which considers a representation regarding future matters to be misleading, if no reasonable grounds undergirded the representation.
The onus is on the buyer, to document any information supplied by the seller (or their legal representatives), retain copies of documents provided during negotiations, and to remember the specifics of any representations provided.
Successfully establishing that loss or damage has been incurred
by the buyer, stemming from the seller's conduct, may attract
the following remedies, inter alia:
A court order vitiating the contract of sale, in accordance with
sections 236, 237 and 243 of the ACL;
A declaration outlining the seller's misleading or deceptive
conduct; or
Damages.
Indeed, navigating the business sale process can be rewarding, yet stressful. For the seller, it is prudent to ensure that contracts are expertly constructed to reduce liability, or from the perspective of a buyer, that the seller has complied with its obligations. If you require assistance with protecting your rights in this regard, please do not hesitate to contact us for legal advice and assistance.
