Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd [2025] FCA 314

Background

Bridging Capital Holdings Pty Ltd entered into a share sale agreement to acquire shares in two financial planning companies from Self Directed Super Funds Pty Ltd and Mr Christopher Harris (the principal of the business). The transaction involved a staged acquisition, with the purchase price calculated by reference to adjusted earnings before interest and tax, or AEBIT.

The first tranche involved Bridging Capital paying $2 million for an approximately 45% interest in the companies. After completion of that first tranche, the relationship between the parties deteriorated. The parties later resolved oppression proceedings on the basis that the sellers would buy back the shares. A court-appointed assessor valued the shares at $282,239, far below the $2 million paid.

Bridging Capital then brought further proceedings against the sellers. It alleged misleading or deceptive conduct and breach of warranties under the share sale agreement.

Issues

The case raised two core issues for M&A transactions:

1. did Mr Harris make representations about the financial performance of the business that contravened the statutory prohibitions on misleading or deceptive conduct?; and
2. did the sellers breach warranties in the share sale agreement by failing to disclose all material information known to them about the business?

The buyer relied on warranties including that:

1. all information in the data room and the share sale agreement was true, complete and not misleading;
2. each seller had disclosed all information known to them about the business and the shares that would be material to a reasonable buyer; and
3. that all forecasts and projections were based on reasonable assumptions and prepared with due care and skill.

Findings

The Federal Court rejected the buyer’s misleading and deceptive conduct claim, but found that the sellers breached a warranty.

The Court focused on the ‘all material information disclosure’ warranty. The sellers argued that the data room contained the relevant documents, including underlying materials that would have allowed the buyer to verify the true financial position of the business. The Court accepted that the data room contained source documents that could have corrected the buyer’s misapprehension  but based on the context held that this did not mean the sellers had properly disclosed the relevant information.

Mr Harris had made positive statements to the buyer about earnings and valuation. After his accountant identified inaccuracies in those figures, Mr Harris did not correct the position directly with the buyer. Instead, the correcting material was uploaded to a heavily populated data room. The data room index alone ran to 417 pages and relevant documents were effectively buried among a large volume of material.

The Court rejected the idea that the buyer could be expected to locate a ‘needle in the haystack’ in order to correct the impression created by the seller’s direct communications. On the facts, the documents had not been 'accurately and fairly disclosed' for the purposes of the seller’s disclosure defence.

The sellers were ordered to pay $1,717,761, being the difference between the $2 million paid for the first tranche of shares and the $282,239 received under the share buy-back following the oppression proceedings.

Practical implications

• Correct mistakes directly: Sellers should not rely on a data room to quietly correct earlier statements about key matters such as revenue, earnings or valuation. If later information qualifies or contradicts what has been said, the seller should bring it to the buyer’s attention clearly.
• Disclosure depends on context: Fair disclosure requires more than placing a document somewhere in a data room. Sellers should consider the whole transaction context, including what has been said directly, what the buyer has asked, how important the issue is to price, the size of the data room and whether the buyer has truly been put on notice.
• Answer due diligence questions carefully: Where a buyer asks a specific question, the seller should give a complete and accurate response. Referring only to positive information while leaving material qualifications or liabilities buried in the data room may create warranty risk.
• Review broad data room disclosure clauses carefully: Buyers should be cautious about clauses that deem them to know everything in the data room, particularly where the data room is large or difficult to navigate. More targeted disclosure schedules, specific warranty confirmations or express carve-outs may be appropriate.
• Warranties matter: A warranty claim may succeed even where a misleading or deceptive conduct claim fails. Well-drafted warranties can protect buyers where material information has not been properly or fairly disclosed, while also creating real exposure for sellers if disclosure falls short of the contractual standard.

Key Takeaway

The Court’s findings do not mean data room disclosure is ineffective. It does, however, mean that sellers should treat disclosure as a practical exercise, not a box-ticking exercise.

This case reinforces that good disclosure is not measured by how much information a seller provides, but by whether the buyer has been clearly and fairly provided with all material information.

Where a seller knows that information is material, particularly because it corrects or qualifies something already said to the buyer, the safest course is to say so clearly. Disclosure should shine a light on material issues, not bury them in the fine print.