The recent Federal Court decision of Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd (No 2) [2025] FCA 4 highlights critical issues in corporate governance, accessorial liability, and misleading conduct under the Australian Consumer Law (ACL). The case involved allegations of directors breaching their fiduciary and statutory duties and engaging in misleading or deceptive conduct in securing funding, as well as accessorial liability of associated entities.

Key Takeaways

This decision serves as an important reminder for directors and business owners regarding their obligations under the Corporations Act 2001 (Cth) (Act) and ACL, particularly in transactions involving third-party funding and asset valuations, such as:

• Directors must act in good faith, in the best interests of the company, and for a proper purpose
• Providing false or misleading documentation to obtain financing constitutes misleading or deceptive conduct under s 18 of the ACL
• Accessorial liability extends to third parties who knowingly assist in a director’s breach of duty or misleading or deceptive conduct
• Courts will carefully scrutinise documentation provided in commercial transactions, especially if fraud is alleged.

Background

This case involved two related proceedings concerning the sale of two small animal abattoir chains (Chains) which were surplus following the sale of an abattoir by Silver Fern Farms (SFF) in New Zealand in 2012. The salient facts are as follows:

• In 2012, SFF engaged Watts Meat Machinery Pty Ltd (WMM) and its director Keith Watts to sell the Chains but WMM was unable to find a buyer.
• In June 2013, WMM agreed to purchase the Chains itself from SFF for NZ$200,000 with the intention of on-selling the Chains (although it had not yet found a buyer). The sale was subject to certain terms surrounding payment of the purchase price, restraints as to the on-selling of the Chains and payment of storage costs etc.
• In July 2014, Chopsonion Pty Ltd ACN 142 890 971 (Controllers appointed) (Chopsonion) sought to purchase the Chains and to that end, sought funding from Private Funds Management Pty Ltd (PFM).
• To assist Chopsonion with obtaining funding, WMM provided Chopsonion a number of invoices, valuations and other documents in relation to the Chains.
• Between 16 and 21 January 2014, Chopsonion provided a bundle of documents to PFM including:
  • A valuation carried out by Rolton Ltd (Rolton) which initially provided that the value of a single Chain was between $1.1M and $1.3M, but was subsequently amended by Rolton to provide that the total market value of the Chains was $1.1M to $1.3M; and
  • An invoice from Chopsonion to FG Agri Pty Ltd (FG Agri) for the purchase of two Chains for $2.2M.
• The authenticity of some of these documents was in question in the proceeding
• On 20 January 2015, PFM offered Chopsonion along with Jechbo Pty Ltd (Jechbo) an offer for finance in the sum of $1,175,000 (Loan). The term of the Loan was three months.
• On 21 January 2015, via PFM, a Mortgage Management Agreement was entered into between PFM (mortgage manager), Chopsonion & Jechbo (borrowers) and MEG Investments Pty Ltd, John Charlton Rowley, Red Dog No. 1 Pty Ltd, Richard Willson, Leigh Willson and R.J.C. Willson Nominees Pty Ltd (Lenders).
• The sale to FG Agri did not proceed, the Loan was not repaid and Chopsonion defaulted on the Loan. The Lenders recovered some of their investment but had suffered ongoing losses.

Proceedings

The two related proceedings were as follows:

Chopsonion commenced proceedings against WMM and its director Mr Watts alleging (broadly):

• Breaches of statutory director duties under sections 181 and 182 of the Act
  • Accessorial liability under s79 of the Act
  • Misleading or deceptive conduct under s18 of the ACL, and
  • The use of false invoices to obtain funding.
• The Lenders commenced proceedings against Rolton and its director, Roland Smith alleging:
  • Negligence in providing asset valuations
  • Misleading or deceptive conduct under the ACL; and
  • Deceit.

Findings of the Court

The Court found that the directors of Chopsonion had breached their duties by acting dishonestly in using false invoices to secure financing, exposing the company to liabilities beyond its actual funding needs and gaining an improper advantage for related entities.

Mr Watts and WMM were also found to have knowingly assisted in these breaches, rendering them liable under s79 of the Act.

Misleading or deceptive conduct and deceit

The Court held that the preparation and use of false documentation to secure funding constituted misleading or deceptive conduct under s18 of the ACL. Additionally, certain parties were found to have engaged in deceit, as they knowingly misrepresented the value of the Chains.

Negligence claim dismissed

The Court dismissed the claim against Rolton Ltd, finding that while it owed a duty of care in providing asset valuations, there was no breach of that duty.

Conclusion

This case reinforces the importance of corporate compliance and transparency in financial transactions. Directors must exercise due diligence when handling company funds and documentation, as Courts will not hesitate to impose liability on those who breach their directors’ duties or engage in misleading or deceptive conduct.

Companies and financial institutions should take extra precautions when relying on third-party representations, particularly in high-value transactions. Ensuring proper governance and verifying the authenticity of financial documents can help mitigate the risks of loss and legal liability.

Further information / assistance regarding the issues raised in this article is available from the author, Radhika Kanhai, Partner or your usual contact at Moray & Agnew.