Business sale disputes often arise when a purchaser believes they were misled during the sale process. Whether the issue involves overstated profits, undisclosed liabilities, inaccurate financial information or the loss of a key customer, misleading or deceptive conduct claims are one of the most common forms of post-completion business sale disputes.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Jess Hill and Leo Crnogorcevic to discuss misleading or deceptive conduct in business sales and the legal issues that commonly arise after settlement.

What Is Misleading or Deceptive Conduct in a Business Sale?

Misleading or deceptive conduct is prohibited by the Australian Consumer Law.

In the context of a business sale, a claim may arise where information provided during negotiations creates a misleading impression about the business being sold. This can include positive statements, incomplete information or, in some circumstances, a failure to disclose information that causes a representation to become misleading.

Importantly, not every disappointing business acquisition gives rise to a legal claim. The key issue is whether the purchaser was misled when deciding to proceed with the transaction.

Common Causes of Business Sale Disputes

The discussion highlights a number of situations that frequently give rise to disputes following the purchase of a business, including:

• overstated profits or financial performance
• undisclosed liabilities or debts
• the loss of key customers or suppliers
• inaccurate information provided during negotiations
• representations that do not reflect the true state of the business

These issues often only become apparent after settlement, when the purchaser takes control of the business and begins operating it.
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Due Diligence, Disclosure and Business Sale Risk

A recurring theme throughout the episode is the role of due diligence.

Purchasers are expected to undertake their own investigations before acquiring a business. However, due diligence does not provide protection where a purchaser has relied on information that is misleading or deceptive.

Many business sale disputes involve questions such as:

• What information was provided during negotiations?
• Was important information omitted?
• Did the purchaser rely on those representations when deciding to buy the business?
• Would the purchaser have acted differently if the true position had been known?

These questions often sit at the centre of misleading or deceptive conduct claims.

Misleading Conduct and Breach of Warranty Claims

Business sale disputes frequently involve both misleading or deceptive conduct claims and breach of warranty claims.

Warranties are contractual promises made by a vendor about the condition of the business. If those promises prove to be incorrect, the purchaser may have contractual remedies under the sale agreement.

As a result, purchasers often pursue both contractual and statutory claims when disputes arise after settlement.
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Key Takeaways for Buyers and Sellers

For purchasers, careful due diligence remains critical. Financial records, customer relationships, supplier arrangements and potential liabilities should all be carefully reviewed before completion.

For vendors, information provided during negotiations should be accurate, complete and consistent with the true position of the business.

Many of the most expensive business sale disputes arise not because of what was written in the contract, but because of what was said, represented or understood during the sale process.

The Takeaway

Buying a business always involves risk. The question is whether that risk arose from ordinary commercial uncertainty or because the purchaser was misled during the transaction.

Understanding the interaction between due diligence, disclosure obligations, contractual warranties and misleading or deceptive conduct can help buyers and sellers identify risks early and avoid costly disputes later.
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🎧 Listen to the full episode of Explain That by Velocity Legal fora practical discussion of misleading or deceptive conduct in business sales.
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For advice on buying a business, selling a business, business sale disputes, misleading or deceptive conduct claims or commercial litigation, contact Velocity Legal’s Commercial and Disputes teams.