Shock RFG settlement with ACCC

Debts waived, franchisees paid

RETAIL Food Group will pay out more than $10m and waive debts to some franchisees after striking a deal with the consumer watchdog.

The ASX-listed franchisor, whose brands include Donut King, Michel’s Patisserie, Gloria Jeans and Crust Pizza, had been before the Federal Court in a case brought by the Australian Competition and Consumer Commission.

The commission alleged RFG breached Australian Consumer Law by engaging in false, misleading and deceptive conduct when it sold or licensed 42 loss-making corporate stores to incoming franchisees between 2015 and 2019. The commission announced on Friday it would drop the case after accepting a court-enforceable undertaking from RFG. The company agreed to make payments to and waive historical debts of a number of affected current and former franchisees.

Managing director Peter George said the matter had been “a brake on the company’s success”.

“We’re very happy that this is now in the past where it belongs and I look forward to continuing to make money for our franchise partners with this cloud removed,” he said. “The undertaking is what it is, it’s what you do when the alternative is years more litigation.

“The financial outcome is probably a bit better than we thought it could be a few years ago.”

RFG acknowledged the allegations of misleading conduct without admission.

Payments will be made to some affected franchisees, based on the purchase price paid for their franchise, less any amounts of outstanding vendor finance loans.

RFG will also waive historical debts associated with these corporate stores.

The ACCC had also alleged RFG had misused funds meant for Michel Patisserie’s marketing expenses and did not adequately disclose the payments to franchisees.

RFG will also pay $5m to franchisees of Michel’s Patisserie who paid levies into that franchise’s marketing fund between July 1, 2012 and June, 30, 2017.

ACCC Chair Gina CassGottlieb said the watchdog was pleased that RFG had agreed to make payments to certain impacted franchisees.

“We initially took this action because we were concerned with the alleged conduct and the impact on a number of small business operators,” she said.

RFG is still facing a class action in the Federal Court from Michel’s Patisserie franchisees. The franchisees hit a hurdle in October and were forced to submit an entirely new statement of claim after the court struck out their initial claim with costs.

RFG will be required to regularly report to the ACCC about the actions taken and payments made, under the undertaking. RFG has also undertaken to implement a compliance program in relation the Australian Consumer Law and the Franchising Code of Conduct and will contribute to the ACCC’s legal costs. RFG shares rallied 10 per cent to 7.6c on Friday.