The real cost of insufficient disclosure: Lessons from a recent Australian case law

The case of Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd [2025] FCA 314 illustrates how inadequate document review and due diligence can lead to disastrous outcomes for buyers.

When disclosure falls short

The case involved a seller who significantly misstated the company's earnings during initial negotiations. Rather than directly correcting this misrepresentation, the seller chose to upload hundreds of documents to their chosen virtual data room – including bank statements, emails, and accountant notes – that would reveal the true financial position.

Crucially, the buyer was not notified that these corrective documents had been added or that they contained information contradicting the seller's earlier statements.

The buyer, operating under the assumption that the seller's verbal representations were accurate, failed to conduct a comprehensive review of the newly uploaded documents. They proceeded with the acquisition based on the incorrect financial information, only discovering the true state of affairs after completion.

The Court's clear message

The Federal Court's decision was unambiguous: simply uploading a large volume of documents into a data room does not constitute proper disclosure of critical information. Specifically, the Court emphasised that buyers shouldn't be expected to hunt for vital details buried among hundreds of files.

More importantly, when information could significantly impact a transaction – such as earnings data that directly affects valuation – sellers have an obligation to actively draw attention to it.

This ruling reinforces a fundamental principle: passive disclosure is insufficient when dealing with material information that could alter the trajectory of a deal.

The buyer's dilemma: Trust but verify

While the Court found in favour of the buyer in this instance, the case highlights a critical vulnerability that acquirers face in every transaction. Sellers may not always be as forthcoming as expected, and even well-intentioned parties can fail to communicate essential information effectively.

The buyer's failure to thoroughly review the data room contents, despite having access to corrective information, underscores a harsh reality – in M&A transactions, incomplete due diligence can be catastrophically expensive. Had the buyer implemented more rigorous document review processes, they might have discovered the discrepancies before proceeding with the acquisition.

Beyond legal obligations: Building better practices

This case serves as a wake-up call for both buyers and sellers. For buyers, it demonstrates that comprehensive due diligence cannot rely on shortcuts or assumptions. Every document in a data room deserves scrutiny, particularly when new materials are added during the process.

For sellers, the case provides equally important lessons about disclosure strategy. Rather than relying on passive document uploads to correct earlier misstatements, sellers should proactively communicate material changes or corrections.

This means directly notifying buyers when new information is added that contradicts previous representations, and clearly highlighting documents that contain critical financial or operational data.

Effective disclosure isn't just about making information available – it's about ensuring buyers can readily identify and understand material information that could impact their decision-making.

Ansarada's virtual data room technology flags new uploads, allows buyers and sellers to track document changes with bank-grade security controls, and ensures systematic review processes. However, technology is only as effective as the processes behind it. Buyers must establish rigorous protocols for document review, including regular audits of newly uploaded materials and systematic verification of all financial representations.

Technology-enabled due diligence

This case perfectly illustrates why thorough, technology-enabled due diligence is non-negotiable for buyers in today's M&A environment. When critical information is scattered across hundreds of documents, having the right tool and processes to identify, analyse, and verify that information becomes essential.

The lesson extends equally to sellers: transparency and proactive disclosure from the outset can prevent costly disputes and build trust throughout the transaction process. Rather than allowing buyers to discover material discrepancies through extensive document review, sellers should truthfully disclose information that could significantly affect the deal upfront.

This approach not only reduces legal risk but can accelerate deal completion by preventing the delays and renegotiations that often follow the discovery of undisclosed material information.

The lesson is clear: in M&A transactions, what you don't know – or fail to discover – can indeed hurt you. Comprehensive due diligence isn't just about legal compliance, it's about protecting your investment and ensuring you're making decisions based on complete, accurate information.

Note: This case law applies specifically to Australian transactions and should be considered alongside local legal advice. This article is provided for general informational and marketing purposes only, and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information at the time of publication, it should not be relied upon as a substitute for legal advice specific to your circumstances. Readers are encouraged to seek independent legal counsel before making any decisions or taking any actions based on the content of this article.