Companies can be held liable for related entity’s conduct

Companies just got a big wake up call following a recent decision out of the Federal Court of Australia that established holding companies and sibling companies may be held liable for actions of their related entities. Such liability is determined by the level of involvement a holding company or sibling company has with any infringing actions.

Emma Sleep AU engages in misleading, deceptive and unconscionable conduct

On 16 June 2025, the Federal Court of Australia handed down its judgment in ACCC v Emma Sleep GmbH [2025] FCA 618. The case involved Emma Sleep GmbH, a bedroom furniture supplier based in Germany, and its foreign-owned subsidiaries – Bettzeit SouthEast Asia Inc (Bettzeit) and Emma Sleep Pty Ltd (Emma Sleep AU).

Between 2020-2023, Emma Sleep AU advertised products as discounted from a set retail price and for a limited period of time (the Representations). The development, approval, and release of the Representations was managed by Country Team Australia, a division of Emma Sleep AU responsible for its business operations and comprised of a leadership team employed directly by Bettzeit.

In reality, a majority of the products advertised as discounted online had never been sold at the set retail price, and the advertisement was used to create a false sense of urgency to customers.

Section 18 and 29(1)(i) of the Australian Consumer Law (ACL), prohibits misleading and deceptive conduct, and unconscionable conduct in connection with goods or services.

As a result of advertising products at a discount when they were never sold at the set retail price, Emma Sleep AU admitted to the ACCC that the Representations contravened section 18 and 29(1)(i) of the ACL by being misleading and deceptive, and constituting unconscionable conduct.

However, in addition to Emma Sleep AU, the ACCC sought liability from Emma Sleep AU’s parent company, Emma Sleep GmbH, and sibling company, Bettzeit, as principal contraveners and as agents of Emma Sleep AU under section 139B(2) of the Competition and Consumer Act 2010 (Cth) (CCA).

ACCC alleges related entities on the hook for ACL contravention

Pursuant to section 139B of the CCA, a company can be found to be liable for the breaching conduct of its related entities, where it can be shown that company’s conduct attributed to the breaching conduct.

The ACCC asserted Bettzeit and Emma Sleep GmbH were both liable for several reasons.

In respect of Bettzeit:

• The sibling company was directly involved in the day-to-day operations of Emma Sleep AU.
• Evidence demonstrated that the sibling company was responsible for determining the price of Emma Sleep AU’s products.
• Team charts revealed the majority of employees working within Country Team Australia were employed by the sibling company.

In respect of Emma Sleep GmbH:

• The directors and senior managers of the parent company provided a significant level of guidance and input to Country Team Australia.
• The parent company entered into an agreement to provide management and administrative services to its Australian and Filipino-based subsidiaries (Management Agreement).
• The parent company provided financial assistance to Emma Sleep AU.
• The parent company responded on behalf of Emma Sleep AU to the ACCC’s request for information which was specifically addressed to Emma Sleep AU.
• The parent company owned one of the websites upon which the Representations were made.

Court finds Bettzeit liable

The Court held that Bettzeit was responsible for Emma Sleep AU’s day-to-day business and management of online content as the majority of employees working within Country Team Australia were employed directly by Bettzeit. Therefore, Bettzeit was considered to have engaged in conduct on behalf of Emma Sleep AU, constituting derivative liability under s139B(2)(b)(i) of CCA.

Furthermore, the Court found Bettzeit was liable as a principal contravener because of the direct involvement of its employees in making the Representations for Emma Sleep AU.

Court finds Emma Sleep GmbH not liable

The Court found no sufficient evidence that Emma Sleep GmbH gave directions to Emma Sleep AU to make the Representations. Despite the parent company providing financial assistance and being a party to the Management Agreement, no agency relationship was found to exist between Emma Sleep GmbH and its subsidiary. Therefore, the court found no indication that Emma Sleep GmbH was involved in the day-to-day operations of Emma Sleep AU.

The parent company was ultimately not deemed liable under s 139B(2) CCA and as a result, not a principal contravener either.

Key takeaways

The decision of ACCC v Emma Sleep GmbH provides insight into how a company may be deemed liable for the conduct of its related entities. Parent companies and sibling companies should be cognisant as to whether any advice or direction that is given to a related entity may constitute involvement with that related entity’s conduct.

If your company holds a foreign-owned subsidiary in Australia, Macpherson Kelley’s Commercial team would be happy to provide advice on how to navigate corporate responsibility and separating liability between related entities. Get in touch with our knowledgeable lawyers today.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.