Selling Shares in a Company: What You Need to Know About Warranties

O*NO! Federal Court of Australia Rules on Misrepresentation and Breach of Warranties in Share Sale Agreement.

Today, we're diving into a recent ruling by the Federal Court of Australia. This case is all about misrepresentation and breach of warranties in a share sale agreement between two businesses.  

Imagine you're selling your real estate agency. You've worked hard to build it up, and now you're ready to sell part of it to a buyer who's excited to take it to the next level. You agree on a price based on your agency's earnings, and you both sign a contract. Sounds great, right? 

Although this case doesn’t involve a real estate agency, the legal considerations and risks are largely the same and common to all share sales. 

The Drama Unfolds 

In this case, Bridging Capital Holdings Pty Ltd (BCH) entered into a share sale agreement with Self Directed Super Funds Pty Ltd (SDSF), represented by its director Mr Harris. BCH agreed to purchase shares in two companies owned by SDSF, with the total price based on a valuation provided by Mr Harris. BCH made an initial payment and acquired a partial shareholding, with full control to follow after a second payment. 

However, conflicts arose between the parties, and the second payment was never made. BCH later claimed that they had relied on several representations made by Mr Harris before signing the agreement. These included expectations about future revenue, business growth through acquisitions, valuation methods, and regulatory compliance. BCH also alleged that SDSF failed to disclose issues with a key technology supplier, which could affect future income. They argued that these representations were misleading and that certain promises in the agreement had been breached. 

The Court's Decision 

The Federal Court found that while not all of the alleged representations were actually made or misleading, there were still breaches of several express warranties in the share sale agreement. These included promises about disclosing important information, making reasonable forecasts, and not providing misleading details. Because of these breaches, the court awarded the buyer over $1.7 million in damages, plus interest and legal costs.  

The decision highlights how even if statements aren’t technically misleading, failing to meet the promises written into a contract can still lead to serious consequences. If you're thinking about selling your agency and making promises or guarantees in the contract, it's extremely important to make sure they're true and can be proven. Otherwise, you could end up being responsible for any loss the buyer has suffered, and sometimes even additional penalties on top. 

Key Takeaways 

Misrepresentation and breach of warranties can lead to legal disputes. 

• If you're selling your agency, be honest and clear about your business's financials and future. 

• Courts will closely examine what you say and promise in your contracts. 

• Even small mistakes or omissions can lead to big consequences. 

Thinking about selling your real estate agency through a share sale? Make sure your contracts are rock solid. And if you're not sure what to include or how to protect yourself, get legal advice before you sign anything. 

Next Steps

If you're planning to sell your agency or already in talks with a buyer, reach out to our team of expert lawyers. We'll help you draft or review your share sale agreement so you can avoid the kind of drama we just talked about. Book in for your free 10 minute chat here!

Frequently Asked Questions (FAQ)

• What’s the difference between misrepresentation and breach of warranty?

  Misrepresentation is when false or misleading info is given before the contract is signed. A breach of warranty is when a promise written in the contract isn’t kept, even if it wasn’t meant to mislead. 

• Can I be liable even if I didn’t mean to mislead the buyer?

  Yes. The court can still hold you responsible if you don’t deliver on what was promised in the contract, whether or not it was intentional. 

• What should I be careful of when selling my agency?

  Be clear and honest about your business's finances, risks, and growth potential. Don’t include anything in the contract unless it’s accurate and you have proof to back it up. 

• How can I protect myself in a share sale?

  Work with a lawyer to draft or review the agreement. They’ll help make sure everything is correct and protect you from future disputes or legal claims.

Luke Shumack – Senior Lawyer, O*NO Legal

Luke Shumack is a Senior Lawyer at O*NO Legal with a Bachelor of Laws and a sharp focus on helping agencies and business owners stay compliant while scaling with confidence. Since starting his legal career in 2021, Luke has worked closely with real estate agencies, startups, and established businesses on privacy compliance, employment law, contractor agreements, mergers and acquisitions, and corporate governance. Known for his tech-savvy approach and love of efficiency, Luke blends legal precision with practical business strategy—making the complex simple for clients who want to move fast without risk.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.