The revised Franchising Code of Conduct, which commenced on 1 January 2015, requires franchisors to disclose their officers’ relevant business experience and allows for financial penalties of up to $54,000 for serious breaches. These amendments were introduced to ensure the protection of small businesses – whose owner’s life savings are often on the line.
ACCC Proceedings Against Pastacup and its Previous Director
The ACCC has instituted proceedings in the Federal Court against Pastacup’s current franchisor Morild Pty Ltd (Morild) and the company’s former director Mr Stuart Bernstein, alleging breaches of the Code.
Pastacup has 20 stores in Perth and regional WA and charges franchisees $40,000 to open a store.
The ACCC is alleging that Mr Bernstein failed to disclose his directorship and management of two previous Pastacup franchisor companies that became insolvent. It contends that this information should have been disclosed by Morild in the disclosure document, which is required by the Code to be provided to potential franchisees. The ACCC also alleges that Mr Bernstein was knowingly concerned in Morild’s conduct.
As the ACCC Deputy Chair Dr Michael Schaper said:
‘These proceedings are the first in which the ACCC has sought penalties for breaches of the Franchising Code. The ACCC is pleased that the revised Code provides for the Court to impose penalties for serious breaches. We expect that the availability of such remedies will act as a significant deterrent to others’.
The ACCC is seeking declarations, injunctions, penalties, findings of fact and costs.
Learnings and Actions for Franchisors
- Franchisors must disclose their officers’ relevant business experience to franchisees
- Review your disclosure document, franchise agreement and related documents
- Seek legal advice to ensure compliance with the Franchising Code of Conduct
CIE Legal can advise franchisors on all aspects of their business and the franchise process. Please contact us for assistance.