Selling a business in Australia can be one of the most significant financial and professional milestones for a business owner. However, it’s also an area where legal risks can quickly arise – particularly if a seller’s statements or omissions are considered misleading or deceptive.
This article, prepared by our commercial M&A lawyers, explains what misleading conduct means under the law, how it commonly occurs, and how to avoid it when selling your business.
Key Takeaways
- Misleading or deceptive conduct is prohibited under section 18 of the Australian Consumer Law (ACL) – even unintentional misrepresentations may breach the law.
- Vendors must ensure all information about their business is accurate, complete, and verifiable, including financials, contracts, and forecasts.
- Silence or omissions can be misleading if they create a false impression.
- Clear disclosures, disclaimers, and documentation are essential in avoiding liability.
- Working with an experienced commercial lawyer helps ensure your sale process meets legal and ethical standards.
When Misleading Conduct Arises in Business Sales
Misleading or deceptive conduct can occur during any stage of the sale process – from early marketing to post-completion disclosures. Common examples include:
- Overstating profits or undervaluing liabilities
- Presenting projections without reasonable grounds
- Omitting known risks or pending legal disputes
- Misrepresenting customer contracts or goodwill value
- Using outdated or unaudited financial data
Even silence (failing to correct a misunderstanding or omitting material facts) can breach the ACL.
Legal Consequences of Misleading Conduct
If a seller is found to have engaged in misleading or deceptive conduct, the buyer may be entitled to:
- Rescind the contract (void the sale)
- Claim damages for loss suffered
- Seek court orders or declarations against the seller
- Face ACCC investigations and civil penalties
These consequences can be financially and reputationally damaging, particularly for repeat business owners or directors.
Best Practices to Avoid Misleading Conduct
Verify All Information
Ensure every financial, operational, and legal representation is accurate and current. Obtain independent verification for accounts, contracts, and licences.
Be Transparent
Disclose any known risks, disputes, or limitations that may affect the buyer’s decision. Transparency builds trust and protects you from claims.
Avoid Overstatements
Be realistic when describing business performance, client relationships, or growth potential. Avoid language that implies certainty about future performance.
Use Proper Disclaimers
State clearly when information is unaudited, estimated, or subject to change, and encourage buyers to conduct independent due diligence.
Maintain Documentation
Keep records of all representations, assumptions, and supporting evidence. This documentation can be vital if a dispute arises.
Seek Legal Review
Engage a commercial lawyer before finalising disclosure materials, sale agreements, or promotional documents. They can identify risks and draft compliant terms.
If you’re preparing to sell your business, contact Prosper Law today. Our experienced commercial lawyers can help you navigate the sale process, manage risk, and comply with the Australian Consumer Law.
Checklist: Avoiding Misleading Conduct When Selling Your Business
Before finalising your sale, use the following checklist to ensure your disclosures, documents, and communications comply with the Australian Consumer Law and minimise the risk of misleading conduct claims:
- Verify all financials and business data
- Disclose material facts and risks
- Avoid unsubstantiated future statements
- Use accurate and clear marketing materials
- Provide disclosure schedules and disclaimers
- Maintain audit trails of all communications
- Obtain legal advice before completing the sale
Our commercial lawyers bring practical experience in business transactions across various industries – ensuring your sale is transparent, compliant, and efficient.
For readers wanting a broader overview, check out our comprehensive Legal Guide to Selling a Business in Australia for step-by-step legal preparation and compliance tips.
Frequently Asked Questions
What counts as misleading or deceptive conduct when selling a business?
Misleading conduct includes any statement, action, or omission that creates a false or misleading impression – even unintentionally. This can include overstating profits, concealing debts, or omitting key information.
Can I be liable even if I didn’t mean to mislead a buyer?
Yes. Under the Australian Consumer Law, intent is irrelevant. What matters is whether your conduct was likely to mislead a reasonable person in the buyer’s position.
How can I protect myself from claims after selling my business?
Keep accurate records, use clear disclaimers, and ensure your sale agreement contains appropriate warranties and limitations. Engage a commercial lawyer to review all documentation.
Avoiding misleading conduct when selling a business isn’t just about avoiding legal trouble – it’s about ensuring fairness and preserving the integrity of the sale. By taking a proactive, transparent approach and working with legal professionals, sellers can achieve a smooth transaction and protect themselves from future disputes.
What should I disclose to a potential buyer?
You should disclose all material information that could affect the buyer’s decision, including financial data, key contracts, liabilities, disputes, and risks.
To understand how sale price structures impact legal and tax risk, see our article on Buying a Business – Fixed, Earnout & Deferred Price.
What happens if the buyer accuses me of misleading conduct?
Seek legal advice immediately. Your lawyer can review your disclosures, assess the claim’s validity, and help you negotiate or defend against the allegations.
If you’re preparing to sell your business, contact Prosper Law for expert legal advice tailored to your situation.
