Vendor due diligence and conduct

A recent case in the Supreme Court of Victoria (Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13) highlights the importance of transparency and withholding information when acquiring businesses/companies in Australia. A simplistic summary of the facts and allegations are set out below.

  • Viterra owned Joe White.

  • Glencore owns Viterra group and its subsidiaries which at the time included Joe White.

  • Cargill entered into an Acquisition Agreement with Viterra to purchase all shares in Joe White for $420M.

  • Both Glencore and Viterra entities participated in the blind auction and sale process.

  • Cargill alleged that both Glencore and Viterra engaged in misleading and deceitful conduct including failing to disclose material information during due diligence which Cargill allege had they known, they would not have progressed the sale.

  • Cargill discovered that Joe White:

    • regularly supplied malt to customers that did not comply with contract requirements;

    • misstated results of malt testing to customers; and

    • used gibberellic acid in the malting process despite some customers prohibiting its use.

  • Cargill also alleged that it was deceptively induced to increase its bid during the blind auction after representations were made that there were other bidders in line with Cargill's offer and they would be contacted directly (this was false). Cargill had limited opportunity to verify the representations in what was a high stakes competitive process.

The court found in favour of Cargill and ordered damages being the difference in the purchase price and the true value of the company as at the date of settlement.

KEY TAKEAWAY: Silence, making false statements and deliberately establishing an impression of urgency can be considered misleading and deceptive conduct. If you think something should be disclosed, be transparent even if it is detrimental. Moreover, it is important to ensure that all employees or officers involved in due diligence and sale processes understand their obligations and the implications of poor transparency and behaviour.

Tina Cooper