Silence, ‘safe harbour’ and the limits of creditor protection in Australia

The court’s conclusions in the case, Octet Finance Pty Ltd v MacGregor, also, crucially, provide a careful examination of when that that conduct will - and will not - translate into recoverable loss.

Here, the court found that a senior executive’s failure to correct earlier reassurance, once circumstances materially changed, could amount to misleading conduct by silence, but rejected attempts to extend that liability to directors via safe harbour‑based agency theories.

It also declined to award substantial damages, emphasising the central role of causation, secured creditor priorities and unfair preference constraints.

This decision reaffirms the intended protection of directors operating within a genuine safe harbour process while underscoring the limits of creditor recovery where alleged loss depends on speculative, insolvency specific counterfactuals.

Background

The proceedings arose from the collapse of Mrs Mac’s Pty Ltd, a long‑established Australian food manufacturer. During 2022, Mrs Mac’s experienced significant financial distress and undertook a restructuring process – known as Project Gateway - that ultimately resulted in an asset sale to an entity associated with the Pie Face business followed immediately by liquidation.

Throughout this period, Octet Finance Pty Ltd provided Mrs Mac’s with an unsecured revolving supply‑chain facility. To the date of the judgment, Octet had not received any return in the liquidation. It commenced proceedings against the company’s chief financial officer and six of its directors seeking to recover its loss on the basis of misleading or deceptive conduct, silence, knowing involvement and unconscionable conduct.

Octet alleged, in substance, that statements made by the CFO gave it the impression that Mrs Mac’s was pursuing a recapitalisation that would enable the facility to be repaid. When the restructuring process pivoted towards an asset sale likely to precede liquidation, the failure to correct that impression was misleading or deceptive.

It claimed the directors were personally liable because the CFO was said to be acting as their agent, particularly in connection with a safe harbour strategy; or that they were knowingly concerned in the misleading conduct.  Octet argued that had it been properly informed, it would have acted earlier and avoided its loss – and that, alternatively, the conduct was unconscionable.

The court’s main findings

Part of Octet’s case was that the CFO was acting as the personal agent of the directors, on the basis that creditor communications were undertaken to preserve the directors’ position under the safe harbour regime.

The court rejected this argument and held that the safe harbour provisions are directed at achieving a better outcome for the company, not conferring a personal benefit on directors.

It also found that the CFO’s dealings with creditors were undertaken in his ordinary executive capacity for the company, not as an agent for directors personally, and that there was no express or implied agency capable of grounding personal liability for the directors under the Australian Consumer Law (ACL).

As a result, all claims against the directors on this basis failed.

The court found that statements made by the CFO earlier in the restructuring process - concerning recapitalisation efforts and improved prospects - were accurate at the time and supported by a reasonable factual basis, given the state of negotiations and proposals then under consideration. As such, those statements did not contravene section 18 of the ACL when they were made.

An important feature of the court’s reasoning was its acceptance that, although the CFO was aware that an asset sale was a possible outcome of the restructuring process, he did not become aware until September 2022 that an asset sale followed by liquidation had become the preferred and likely outcome.

Up to that point, recapitalisation and other restructuring options remained plausible, and the assurance previously given to Octet had not become inaccurate. The obligation to correct Octet’s understanding therefore did not arise merely because an asset sale was being contemplated, but only once the CFO became aware of the materially different outcome that was now likely to occur. It was only from that point that continued silence could be characterised as potentially misleading.

Also significant was the context in which earlier reassurance had been given and relied upon. The CFO had conveyed to Octet, at a time of immediate credit concern, an impression that the restructuring process was likely to result in recapitalisation and repayment.

Once that impression was created, the court held that Octet was entitled to expect it would be corrected if it ceased to be accurate, particularly as the information necessary to correct that understanding was not otherwise available to Octet. The court rejected the submission that confidentiality obligations alone displaced that expectation, noting that the fact disclosure would likely have prompted Octet to act differently underscored the materiality of the information withheld.

At the same time, the court drew a clear boundary around responsibility for that silence. The reasonable expectation of correction lay with the company, and with the CFO who had given the earlier reassurance, not with the directors generally. Although the directors were aware of the restructuring strategy and the need for confidentiality, they did not have sufficient knowledge of the detail or effect of the CFO’s communications with Octet to be said to be knowingly concerned in the failure to correct Octet’s understanding.

The resulting finding made by the court was carefully confined: silence amounted to misleading conduct only because of the specific context created by the CFO’s earlier statements and that liability did not expand beyond that narrow setting. The judgment does not dilute orthodox principles governing non‑disclosure in commercial restructurings but does, importantly, clarify that where reassurance is given to address immediate creditor concern and secure ongoing support, it may give rise to a continuing obligation to be corrected if the underlying position materially changes.

Despite finding misleading conduct by silence, the court held that Octet did not establish that its overall loss totalling approximately A$4 million was caused by that conduct, or that it would probably have achieved a materially better outcome had it acted earlier. The alternative scenarios advanced by Octet depended on speculative assumptions as to the responses of the secured lender and the board and were constrained by insolvency law considerations, including the risk of unfair preferences.

Although the court accepted that a limited loss was causally connected to the misleading conduct, it rejected recovery of Octet’s full exposure. The debt incurred on the facility during the period between 22 September 2022 and the date Mrs Mac’s went into liquidation totalled A$75,558.92.

The court held that any loss recoverable from the CFO was required to be limited under s87CD(1)(a) of the Competition and Consumer Act 2010 (Cth) to an amount that was just having regard to the extent of his responsibility for that loss. The judge determined that Mrs Mac’s was a concurrent wrongdoer in relation to the misleading or deceptive conduct and a 50% recovery against the CFO was appropriate.

In reaching that conclusion, the court accepted that the CFO’s silence after 22 September was influenced by Mrs Mac’s confidentiality policies and obligations under confidentiality agreements and that in facilitating the continued use of the Octet facility the CFO was acting in what he believed to be the interests of the company and its creditors generally, in his capacity as CFO and not for any personal gain.

At the same time, the court found that the CFO knew that if Octet’s understanding was to be corrected, it would need to be done by him or through informing the directors, given his knowledge of the circumstances in which Octet had been persuaded to reinstate the facility and the impression that had been created.

The court entered judgment against the CFO in the total sum of A$37,779.46 and dismissed all claims against the directors. The court also did not find that any of defendants, including the CFO, had engaged in unconscionable conduct under s21 of the ACL. The monetary relief awarded reflected only a limited loss causally connected to the misleading conduct for a confined period, rather than Octet’s overall exposure under the facility – which was alleged to be approximately A$4 million.

Practical insights

The case brings with it practical considerations for directors and boards, not least that properly advised directors implementing a restructuring for the benefit of the company will not readily be exposed to personal ACL liability.

It also emphasises that safe harbour does not transform executive‑level creditor communications into personal representations by directors.

For executives, it highlights that silence can mislead, particularly when earlier reassurance has created a continuing impression, and that confidentiality obligations do not themselves eliminate any ACL risk.

As a result, executives who are the primary interface with creditors should reassess earlier communications as the restructuring process evolves and develops.

Meanwhile, for financiers and trade creditors, it confirms that informal reassurances made during restructures are no substitute for enforceable protections, as courts will closely scrutinise any counterfactual arguments that creditors would have been paid.

For cases where repayment depends on secured creditor cooperation, causation and insolvency law constraints will be decisive.