Election puts hold on franchise action
THE Federal Election has stalled meaningful action on the landmark inquiry into the franchising sector, with ASIC and the ACCC yet to react to the findings which were released six weeks ago.
The scathing joint parliamentary report into the franchise sector recommended past and present bosses of Gold Coast franchisor Retail Food Group be investigated for the possibility of insider trading, tax avoidance, short selling and more.
It found RFG had devastated the franchising industry through an “unjust” business model that bled franchisees dry in the name of shareholder profit and had a business model that relied on exploiting franchisees.
Recommendations also included formation of a Franchising Taskforce, steeper penalties for breaching the Franchising Code, and that the ACCC collect data on conflicts of interest that arise through supplier agreements.
However, under caretaker conventions in force since the May 18 election was called, the federal agencies are unable to enact major policy changes or respond to parliamentary reports.
The committee also recommended the ACCC be granted new powers to identify and act on the marketing and sales of franchises where a franchisor shows a track record of systemic “churning and burning”, where the same outlet is repeatedly sold to new franchisees despite repeated failures.
It recommended ASIC also investigate the “churning and burning”, which it said was systemic at RFG, and said the corporate watchdog should be more proactive in its monitoring and enforcement of franchisor corporate governance.
The committee said the ACCC, Australian Taxation Office and ASIC were “yet to conduct comprehensive, systemic and forensic investigations into the actions and operations of RFG and its current and former executives”.
“The evasive conduct of RFG and its current and former executives has done nothing to instil any confidence in the committee that all their actions are above board and would withstand thorough scrutiny by the regulators,” its report said.
A spokesman for the ACCC said it could not comment on policy issues during the election’s caretaker mode, while notoriouslytight-lipped ASIC did not respond to questions at all.
The ACCC has previously confirmed it is already investigating RFG for potential breaches of Australian Consumer Law and the Franchising Code of Conduct.
ASIC told the inquiry its “specialist teams had reviewed RFG”, but “no issues were identified that required further review or action”.
It declined to provide further details to the inquiry for fear of spooking the stockmarket.
The ATO claimed that “due to taxpayer confidentiality laws”, it was “unable to disclose” whether it had ever looked at RFG.
In its report, the committee found franchise agreements were largely designed by franchisors to protect their interests and that “exploitation” of contracts had caused “significant, and often life-changing, detriment” to franchisees.