Due Diligence Disclosure: Is Putting Documents in a Data Room Enough?

Due diligence disclosure can become a critical issue when buying an established business, particularly where the purchaser later discovers that the financial position of the company was significantly worse than expected. But if material information was technically available somewhere within hundreds or thousands of documents provided during due diligence, has the seller necessarily disclosed it?

The Federal Court considered this issue in Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314. The case demonstrates an important distinction between giving a buyer access to documents and satisfying contractual due diligence disclosure obligations under a Share Sale Agreement.

The dispute arose from the acquisition of interests in financial planning businesses and concerned representations about financial performance, warranties in the Share Sale Agreement and whether material information had been adequately disclosed during the due diligence process.

The transaction

Bridging Capital Holdings Pty Ltd agreed to acquire interests in Exelsuper Pty Ltd and Exelsuper Advice Pty Ltd, businesses operating in the financial planning industry. 

The parties signed a Share Sale Agreement entered into in March 2021. The purchase price was calculated by reference to the businesses’ adjusted earnings before interest and tax, or AEBIT. Under the first stage of the acquisition, Bridging Capital paid $2 million for the first tranche of shares.

The parties subsequently fell into dispute. Earlier proceedings resulted in the shares being repurchased by the seller for $282,239.

Bridging Capital and its director, then brought proceedings concerning the difference between what had been paid for the shares and what was ultimately received when they were repurchased.

Their claims included allegations of misleading or deceptive conduct and breaches of warranties contained in the Share Sale Agreement.

What was allegedly not disclosed?

A significant part of the dispute concerned the financial information provided before the acquisition.

The buyers alleged that representations had been made concerning matters including recurring revenue, future revenue, AEBIT and regulatory compliance.

They also relied on warranties contained in the Share Sale Agreement.

One of those warranties required the sellers to disclose all information known to them about the businesses and shares that would be material to a reasonable buyer.

The Court ultimately identified several material matters that had not been adequately disclosed in communications with the buyers.

These included issues concerning whether revenue associated with certain acquisitions was unencumbered, overstated recurring revenue following the sale of clients, and ongoing liabilities associated with particular acquisitions.

Those matters were significant because they affected the financial picture of the businesses that the buyers were acquiring.

The sellers relied on the due diligence material

The sellers argued that relevant information was available to the buyers through the due diligence process.

The Share Sale Agreement contained provisions designed to protect the sellers from warranty claims where the relevant facts or circumstances had been “Disclosed”.

It also provided that the buyer was deemed to have knowledge of matters that had been disclosed, including information contained in the due diligence data room.

This raised a critical question.

Was it sufficient that information capable of revealing the relevant issues could be located within the due diligence material, or did the sellers need to do more to satisfy their disclosure obligations?

What did the Federal Court decide?

Justice Stewart found that the sellers had breached the warranty requiring disclosure of all information known to them that would be material to a reasonable buyer.

Importantly, the Court distinguished between the accuracy of the material contained in the data room and whether material matters had actually been disclosed to the buyer.

The buyers did not establish that the body of information contained in the data room was itself inaccurate. The Court accepted that the documents, considered as a whole, could provide an accurate picture of the businesses.

The problem was different.

The sellers had failed to draw attention to material matters when responding to the buyers during due diligence.

Some information relevant to those matters could be located within the due diligence material. However, the data room was extensive. Its index alone ran to approximately 417 pages and included nested folders extending numerous levels deep.

The Court considered that there was an important difference between a purchaser having access to a document and the purchaser appreciating the significance of the information contained within it.

In the circumstances, the presence of underlying documents in the data room was not enough to establish that the relevant material matters had been adequately disclosed.

Why couldn’t the sellers rely on the disclosure protections?

This was particularly important because the Share Sale Agreement contained limitations intended to protect the sellers against warranty claims.

Those protections applied where the relevant matter had been “Disclosed”.

However, the contractual definition required the matter to have been accurately and fairly disclosed.

The Court found that the relevant matters had not been disclosed to that standard.

Accordingly, the sellers could not rely on the disclosure limitations to avoid liability for the breaches of warranty.

The Court found breaches of the warranties requiring disclosure of all material information and concerning forecasts and projections. Consequential breaches of related warranties were also established.

The respondents were held jointly and severally liable for the consequences of those breaches.

Judgment was entered for the applicants in the amount of $1,717,761, together with interest and costs.

Due diligence disclosure is more than document access

The significance of Bridging Capital is not that every important document must always be individually identified during an acquisition.

The result depended on the particular wording of the Share Sale Agreement and the circumstances in which the information had been provided.

However, the decision demonstrates an important distinction between making documents available and satisfying a contractual obligation to disclose material information.

This becomes particularly important where a seller responds directly to a due diligence enquiry.

If the response gives one impression about the financial position of the business while information qualifying that response exists elsewhere in the due diligence material, simply making the underlying documents available may not satisfy a contractual obligation requiring material matters to be accurately and fairly disclosed.

What should sellers consider during due diligence?

Sellers should carefully review the disclosure obligations and warranties contained in a proposed business or share sale agreement.

Where a seller knows of an issue that may materially affect the business, its profitability or its valuation, consideration should be given to whether that issue needs to be specifically disclosed rather than relying on the buyer to identify it within supporting documents.

This is particularly important where the buyer has asked a direct question about the relevant issue.

Sellers should also consider how the agreement defines “Disclosed”. Different agreements may impose different standards, and the wording can determine whether information provided during due diligence is sufficient to qualify a warranty.

What should buyers consider?

Buyers should not treat contractual warranties as a substitute for conducting thorough due diligence.

Financial information, liabilities, material contracts, regulatory matters, intellectual property and other significant aspects of the target business should still be carefully investigated.

At the same time, the sale agreement should address risks identified during that investigation.

Where a particular issue is important to the transaction, a buyer may seek specific warranties, further disclosure, indemnities, purchase price adjustments or conditions to completion.

Targeted due diligence questions can also be important. They may require the seller to directly address matters that might otherwise be difficult to identify within a large volume of documentation.

Why the decision matters

Bridging Capital demonstrates that disclosure during a business acquisition is not necessarily satisfied simply because the buyer could, with sufficient investigation, locate information relevant to a particular issue.

Where a sale agreement requires material matters to be disclosed, the nature of the information provided, the way it is communicated and the contractual standard of disclosure can all become important.

For sellers, the case highlights the importance of understanding exactly what warranties and disclosure obligations they are giving.

For buyers, it reinforces the value of targeted due diligence and carefully drafted contractual protections.

Ultimately, due diligence is not only about obtaining access to information. It is also about ensuring that material risks are properly identified, understood and allocated between the parties before an acquisition is completed.

Need experienced legal advice? Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube, LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google Review.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article, and if you require specific legal advice, please contact us.