The consumer watchdog is accusing Australia's biggest dairy processor Murray Goulburn os misleading farmers about prices it would pay for their milk before announcing a shock price cut that pushed many into financial distress.
The Australian Competition and Consumer Commission has begun Federal Court proceedings against Murray Goulburn, the co-operative's former managing director Gary Helou and its former chief financial officer Bradley Hingle.
The ACCC accuses Mr Helou and Mr Hingle of being "knowingly concerned" in the alleged misleading conduct up to April 2016, with commission chairman Rod Sims saying the former executives were "heavily involved".
The ACCC claims Murray Goulburn misled farmers between June 2015 and February 2016, when it told them there was a reasonable basis for milk prices to start at $5.60 per kilogram of milk solids (kgms) and reach a final price of $6.05.
Between February 2016 and April 2016, the processor also said it could maintain the opening price of $5.60 and that a final price of $5.60 was most likely.
In April 2016, Murray Goulburn slashed its price to between $4.75 and $5.00, saying $5.60 was no longer achievable, after a glut in the global dairy market caused a slump in prices.
"The ACCC alleges that Murray Goulburn's conduct had an adverse impact on many farmers who, as a result of Murray Goulburn's representations regarding the farmgate milk price, had made business decisions," Mr Sims said.
Mr Sims said the ACCC had formally interviewed the two men but details were confidential.
The ACCC alleges the co-operative maintained its forecast of what farmers would receive for their milk in the 2015/16 season despite knowing the prices were "overstated and unachievable".
The watchdog is not seeking fines against Murray Goulburn because they would be borne by the co-operative's farmer-members, but does want declarations, compliance orders, corrective notices and costs.
He said the ACCC wanted to send a message to the company and all agricultural industries that they should not engage in the sort of behaviour the watchdog alleges occurred.
However, the ACCC is seeking penalties against Mr Helou and Mr Hingle, who could face penalties of up to $220,000 for each breach of Consumer Law.
Mr Helou told a Senate hearing in February he did not mislead farmers over the farmgate price, saying the company acted on the best information available at the time.
Murray Goulburn on Friday said it was considering the proceedings.
The NSW Farmers' Association welcomed the legal action, with dairy committee chair Erika Chesworth saying it showed a commitment by the ACCC to investigate agricultural supply chain issues.
"For our farmers in the MG (Murray Goulburn) Southern Milk Region, the decision made by Murray Goulburn 12 months ago placed them under unprecedented pressure, and finally they are being held to account," Ms Chesworth said in a statement on Friday.
Mr Helou quit as MD of Murray Goulburn in April 2016 following the price cut and a profit downgrade.
The ACCC has decided not to take action against dairy processor Fonterra, which also cut the farmgate milk price in April 2016, saying it was more transparent about the risks and potential for a price cut.