Supermarket giant Coles has admitted to breaking consumer law and apologised for unconscionable conduct in its treatment of suppliers in a major mea culpa.

Coles and the competition watchdog went to the federal court on Monday offering to make a settlement in which Coles would pay $10m in fines and set up a process for suppliers to seek refunds on payments they should not have made.

The Australian Competition and Consumer Commission (ACCC) earlier this year launched two legal cases against Coles, accusing the supermarket chain of unconscionable conduct. The $10m in proposed penalties apply to 15 different transgressions.

ACCC lawyer Norman O’Bryan outlined to the court a range of cases in which Coles had squeezed its suppliers for payments to fill so-called “profit gaps”.

Coles threatened to no longer buy or promote products if suppliers failed to make payments to cover losses due to waste – which includes shoplifting and markdowns, and late and short deliveries.

It was a case of Coles increasing its profit at the expense of smaller companies, Justice Michelle Gordon said.

Coles’ treatment of Benny’s Confectionery was described as particularly egregious by O’Bryan, and will attract the largest penalty of $1.2m.

Coles rejected any wrongdoing when the second round of charges were laid less than two months ago but reversed that stance on Monday.

“Coles unconditionally apologises and accepts full responsibility for its actions in these supplier dealings,” managing director John Durkan said in a statement. “Coles crossed the line and regrettably treated these suppliers in a manner inconsistent with acceptable business practice.

“ACCC chairman Rod Sims said at the time of launching this action ‘the alleged conduct was contrary to the prevailing business and social values which underpin business standards that apply to dealings with suppliers.’ In the dealings we have identified, I believe that statement is appropriate.”

The process for refunds will be run by former Victorian premier Jeff Kennett, who Coles recently put on its payroll as an “independent arbiter” to resolve disputes with suppliers.

Justice Gordon expressed doubts about whether the penalties go far enough. She also questioned whether suppliers that seek refunds could be cut out of the loop by being kept out of Coles Active Retail Collaboration scheme – from which it has received tens of millions of dollars in payments – which provides suppliers with key data to manage costs and inventory.

There was a “real disparity in bargaining power”, she said.

A decision on whether to allow the settlement could be made on Tuesday.