When preparing to sell a business, it’s important to think carefully about the information you share with potential buyers. Problems often arise where financial details of forecasts are later found to be inaccurate, leading to claims that the seller engaged in misleading or deceptive conduct.

Q. I am proposing to sell a business where the figures for trading, assets and liabilities and the like are provided to me by my accountant whom I trust to provide accurate information. However, if they are found to be incorrect can I be sued for misleading and deceptive conduct?

A. Firstly, it is important to note that if conduct or representations are found to be misleading or deceptive, it does not matter whether it was intended to be such. The question is if they are in fact misleading or deceptive, and if found so, the person who made the misleading and deceptive representation or conduct is liable. Keeping in mind that if the information is passed on and is relied on by the proposed purchaser to obtain valuations of the business, then it could be said that you may be liable for misleading and deceptive conduct.

To avoid this, it is important that when this information is provided, it is clearly stated that you are passing on information received from your accountant (or another source), and that the purchaser should make full enquiries as to the accuracy of the information. Any disclaimer should be carefully worded and brought clearly to the purchaser’s attention.

We recommend obtaining legal assistance from the very beginning in relation to your intention to sell the business and receive advice.

Q. I wish to advertise or propose what the purchaser can expect in the future in relation to certain aspects of the business. What steps do I need to take to avoid a claim for misleading and deceptive conduct?

A. When it comes to future predictions, the fact that it does not eventuate does not necessary mean it is misleading and deceptive. The key question is whether the prediction was reasonable at the time it was made. Accordingly, it is important that care be taken with forecasts, ensuring there is sufficient information to support them.

It may also be useful for some prominent disclaimers to be made in relation to relying on future outcomes. Again, it is recommended that legal advice be sought in relation to this aspect of the sale of your business.

Q. Is it possible to insert terms in the contract that any representations are contained in the written terms of the contract (a whole of contract clause) or it is expressly stated the purchaser made no reliance on a representation or other conduct outside of the terms of the contract?

A. There is High Court authority that clauses such as this do not necessarily – and usually do not – exclude liability for misleading and deceptive conduct if it is found that representations or conduct were in fact misleading or deceptive. As discussed above it is more a matter of ensuring that at the time of representations or conduct about the present nature of the business or future prospects, it is clearly stated to be based on information only and for the purchasers to make their own enquiries.

Alternatively clauses such as the above should be carefully worded to ensure that it can be said that it is something upon which the purchaser should not place any reliance and to make their own full enquiries as to the accuracy. Again, this requires careful legal drafting.

When selling a business, the safest approach is to be diligent. Even if information comes from trusted professionals or predictions are made in good faith, you may still be exposed to claims of misleading and deceptive conduct. Careful checking, well-drafted disclaimers, and obtaining early legal advice are essential steps to protect yourself.

We at RMO Law have experienced business sale practitioners to take you through the process from the time you intend to sell, through to preparing the appropriate contract with the appropriate clauses in this regard, and then right through to completion of the sale. If you have found that you have been pursued for a claim for misleading and deceptive conduct in relation to the sale of your business, contact our experienced commercial litigation lawyers to assist you with fully informed advice in relation to any proceedings or proposed proceedings.

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This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

Peter Kronberg
Special Counsel