This decision is a timely reminder for directors, advisers and investors that personal liability for misleading or deceptive conduct remains a very real risk, even where the impugned conduct is alleged to have been undertaken through a corporate vehicle.
In Morcom Holdings Pty Ltd v Mountain Asset Partners Pty Ltd (in liquidation) (No 6) [2026] FCA 690, the Federal Court permitted an investor to pursue claims not only against the failed wealth management firm, but also against individual directors and employees alleged to have been involved in misleading representations concerning a $2 million investment in convertible notes. The Court rejected attempts by the directors and employees to strike out the claims at the pleading stage.
Why the decision matters
The investor, Morcom Holdings, alleged that representations made about investment opportunities in two entities induced it to invest $1 million in each. It claimed those representations contravened provisions of the Australian Consumer Law, the ASIC Act and the Corporations Act. Importantly, Morcom also alleged that other employees and directors were knowingly involved in the misleading conduct and were therefore personally liable as accessories.
Justice Goodman found that the pleadings were sufficiently detailed to allow the claims to proceed. The Court held that:
- An employee who personally makes representations may be sued in their own right, even where acting on behalf of a company.
- Directors and other employees may face personal liability if they were knowingly concerned in the alleged contraventions.
- Silence can, in some circumstances, amount to misleading conduct where a person knows representations being made are false and fails to correct them.
- Courts will be reluctant to shut down such claims prematurely where the pleadings disclose an arguable case.
The decision does not determine liability. Rather, it confirms that the investor’s claims are sufficiently arguable to proceed to trial.
Key lessons for directors
For company directors, the case reinforces several important principles:
- The corporate veil is not absolute
While companies generally provide limited liability protection, statutory regimes such as the Australian Consumer Law, ASIC Act and Corporations Act can expose directors and officers to personal liability where they are directly involved in misleading conduct. Simply acting as a director or employee will not necessarily shield an individual from claims. Directors indemnity deeds and insurances are as important as ever in Australian corporations.
- Attendance at meetings can create exposure
The allegations against one employee included claims that he attended meetings where misleading representations were made and failed to correct them despite allegedly knowing they were false. The Court accepted that such allegations were capable of supporting a claim.
- Documentation and due diligence matter
Representations concerning future performance, investment returns or business opportunities should always be supported by reasonable grounds and properly documented. Directors should ensure robust due diligence processes exist before approving marketing materials, investor presentations or capital raising documents.
Broader regulatory trend
The case also sits within a broader trend of Australian courts and regulators pursuing individuals involved in misleading conduct. High-profile matters involving companies such as GetSwift have demonstrated courts’ willingness to impose significant penalties and disqualification orders on directors personally involved in misleading market disclosures.
Regulators and investors are increasingly focused on individual accountability, particularly in circumstances involving fundraising, financial services, investment products and market disclosures.
Practical risk management steps
Directors and senior executives should consider:
- Ensuring all investor communications are carefully reviewed before publication.
- Maintaining written records of the basis for any forward-looking statements.
- Seeking legal advice before capital raisings or investment promotions.
- Implementing compliance training regarding misleading and deceptive conduct obligations.
- Maintaining adequate Directors’ and Officers’ (D&O) insurance coverage and having directors indemnity deeds in place.
- Promptly correcting any inaccurate information once identified.
The takeaway
The Federal Court’s decision serves as an important warning that directors and employees cannot assume that liability for misleading conduct rests solely with the company. Where individuals are alleged to have made, authorised, endorsed or knowingly participated in misleading representations, they may find themselves personally defending claims alongside the corporation.
For businesses engaged in raising capital, attracting investors or promoting investment opportunities, the safest course remains ensuring that every representation made to investors is accurate, supportable and capable of withstanding scrutiny long after the investment has been made.
About the Author: This article has been authored by Steven Brown, Steven Brown’s legal career covers working with multinational corporations and Australian listed companies to family-owned businesses. This range of experience has equipped Steven with the unique ability to offer tailored legal services that make a significant difference to businesses of all sizes.
Steven enjoys working with entrepreneurs and family enterprises to both protect them and allow them to forward develop their businesses as well as ensure it can flow to the future generations.
