Hot Topics: Behind the Headlines

Jason Gehrke, Franchise Advisory Centre

Franchisor faces $13m fraud trial ten years after company collapse

The last of three former directors of failed whitegoods retail chain Kleenmaid is facing court for the fourth time following three aborted attempts to deal with charges stemming from the 2009 collapse of the whitegoods retail franchise, according to a media report

Andrew Eric Young is the last of three directors to face court over the company’s collapse, with Young’s younger brother Bradley sentenced in 2016 to nine years jail for his role in knowingly operating the company while it was insolvent, and for defrauding the Westpac Bank of $13 million.

Both brothers initially faced court together, but after his legal representatives withdrew, the court resolved to try Andrew Young later.

A rescheduled trial in 2017 in which Andrew Young represented himself, was aborted early due to “medical reasons”, while another trial in 2018 was similarly aborted after Mr Young applied for Legal Aid. The case is currently being tried in the Brisbane District Court and is expected to last up to eight weeks.

Kleenmaid collapsed in April 2009 with debts of more than $100 million and left more than 6,000 customers emptyhanded after they paid deposits for whitegoods that were never supplied, making it the highest-profile collapse of a franchise system in a decade. The Kleenmaid brand has since been sold to new owners.

$2.6m franchise penalty reduced on appeal

Automotive service franchise, Ultra Tune, has had a $2.6 million penalty for breaches of the Franchising Code of Conduct reduced by more than $500,000, following a recent appeal, according to a media report.

Ultra Tune appealed the January 2019 penalty which related to disclosure obligations and marketing fund statements and requested a review of whether it had breached the Franchising Code of Conduct.

Following the outcome of the appeal, the business is reportedly considering legal action against external accountants and advisers who provided auditing services for the disclosure documentation.

Jump! franchisees re-join under a new operator

Melbourne-based consortium Belgravia Group has acquired another 21 franchise agreements of the beleaguered swim school chain Jump!

in addition to the 40, they purchased in July, according to a media report.

Belgravia bought the intellectual property and trademarks associated with Jump! after the chain was placed into administration in May. At the time, the Australian Competition and Consumer Commission (ACCC) was seeking injunctions, declarations, pecuniary penalties, and refunds from the previous owners for several franchisees who have not been able to open their businesses despite paying for their franchise up to two years earlier.

Round table forum for franchiseeowned networks on November 19

A round table forum for franchise networks in which the franchisees are the shareholders and ultimate owners of the franchisor will be held in Melbourne on November 19.

It is estimated that about four per cent of the franchisors operating in Australia are franchisee-owned. These brands typically experience significantly higher levels of franchisee satisfaction and profitability compared to privately or publicly-owned brands.

The November 19 forum is open to the leadership teams and directors of franchiseeowned brands. For more information, visit www.franchiseadvice.com.au

Loyalty programs under the microscope at Marketing Forum

With the recent announcement that The Australian Competition and Consumer Commission (ACCC) will be focussing on poor practices in the management of customer loyalty programs, including unilateral changes and data concerns, the 2019 Franchise Marketing Forum program will feature a dedicated session on this topic.

The highly-interactive Forum to be held in Brisbane on November 13, is the only event of its kind for franchisor marketing personnel to share their experiences and insights into the execution of effective marketing campaigns while leveraging often modest budgets and managing the input and interest of franchisee stakeholders.

The program features case studies from franchise brands which are leaders in their respective market segments, expert panels and group discussions on current and topical marketing issues, including a detailed panel session on how to operate an effective and compliant loyalty program.

The Marketing Forum is the only professional development opportunity of its kind in Australia and New Zealand for the marketing personnel of franchise brands.

Harvey Norman to raise capital as recession buffer

Listed furniture and home electronics retailer Harvey Norman has announced a $173 million capital raising as part of a strategy to pay down its consolidated entity debt of $626 million and protect the business against a sudden recession, according to a media report.

Shareholders who participate in the new capital raising will receive one new share for every 17 shares they currently own.

Harvey Norman chairman Gerry Harvey is reportedly convinced that a recession or depression will occur in future, and estimates that up to 20 per cent of retailers will go broke. The company reported an increase of seven point two per cent in full-year profit to $402.3 million for the 2019 financial year, much of which was derived from its overseas operations.

ACCC criticises disclosure failings

The ACCC has found that food services franchisors commonly provide inadequate information to potential franchisees, including issues related to supply restrictions and “key unavoidable ongoing costs” such as wages, rent, and inventory.

The 11-page report Disclosure practices in food franchising details findings from its most recent round of compliance checks in the franchised food services sector, where it audited 12 franchisors in response to public or industry feedback. The report also emphasised the importance of potential franchisees seeking independent professional advice before signing any franchise agreement and should walk away if franchisors are unwilling to provide contact details of former franchisees.

The ACCC recently released new guidance for franchisors to assist in updating their disclosure documents.

Franchise expos change to Fri-Sat in 2020

The Franchising & Business Opportunities Expo will move to Fridays and Saturdays from next year to attract a more diverse mix of professionals and families.

The expos are the only dedicated franchise exhibitions in Australia and have traditionally been held on Saturdays and Sundays. Dates for the 2020 expos in Sydney, Brisbane and Melbourne have now been released, with a one-day show to be held in Perth.

New disclosure guidance for franchisors

The ACCC has released an updated model disclosure document to assist franchisors in completing their annual review and updating of disclosure documents as required by the Franchising Code.

The ACCC has reportedly improved the model document by making it easier to read and understand; providing a recommended format which meets the requirement of the Code; and providing tips to assist franchisors in fulfilling their obligations. Disclosure documents for all franchises with a financial year ending June 30 must be updated by October 31.

Gig economy gives rise to “working homeless”

The gig economy is creating a new class of “working homeless”, where workers generate an insufficient income to afford the high rents demanded in many cities, according to a media report.

Advocates for the gig economy often cite benefits, including the flexibility for workers to work when, where, and if they want to work. Critics of the gig economy, however, claim that exploitation often occurs under the guise of flexibility with gig workers being underpaid and, being defined as contractors, not employees, therefore, being ineligible for sick pay and other benefits.

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