Shocking claims against food franchise bosses
A SCATHING parliamentary report into the franchise sector has recommended sweeping Federal investigations of past and present bosses of Queensland franchisor Retail Food Group, looking at everything they own or have any interest in and examining the possibility of insider trading, tax avoidance, short selling and more.
The joint parliamentary inquiry found RFG was at the centre of "systemic" exploitation of franchisees, enabled by legislation that is patently inadequate.
The inquiry's committee - made up of Senators and lower house MPs - was formed in March to look at the operation and effectiveness of the Franchising Code of Conduct.
In its report released this morning, RFG was mentioned 333 times and the committee recommended "that the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission and the Australian Taxation Office, conduct investigations into the operations and dealings of Retail Food Group, its former and current directors and senior executives and companies and trusts they own, direct, manage or hold a beneficial interest in".
The report said investigations should look at "Australian Consumer Law, the Franchising Code of Conduct, insider trading, short selling, market disclosure obligations (including related party obligations), compliance with directors' duties, audit quality, valuation of assets (including goodwill), and tax avoidance".
It recommended a multi-agency Franchising Taskforce to consider the implementation of the recommendations.
The inquiry found RFG had "churned and burned" individual franchise sites by repeatedly selling them to new franchisees despite previous owners failing to succeed in them.
Former Retail Food Group managing directors Tony Alford and Andre Nell were among those forced to front the inquiry.
Mr Alford frustrated the committee by unnecessarily prefacing every statement he made with the word "privilege" and by frequently stating he "had no insight" or "recollection" of the operations of the beleaguered franchisor.
That was despite his tenure at the company lasting decades, including stints as CEO and managing director before he left his position as a non-executive director in 2017.
His exit came before a massive collapse in the value of the Gold Coast franchisor, which owns brands including Pizza Capers and Donut King.
A number of franchisees have claimed RFG operated a brutal business model that left them financially devastated, having to sell their property or declare bankruptcy.
The inquiry found existing legislation can exaccerbate the power imbalance between franchisors and the small business owners they are supposed to support.
In its report this morning, the committee found franchise agreements were largely designed by franchisors to protect their interests and that "exploitation" of contracts had caused "significant, and often lifechanging, detriment" to franchisees.
The inquiry found that while cases of franchisee exploitation was isolated when it was last examined in 2008, it had since become systemic.
"As a business structure, franchising exhibits a substantial disparity in power between franchisors and franchisees," the report said.
"This power imbalance is inherent to the structure, given the franchisor owns the business model and has control over operations and franchisee contracts, as well as their tenancy in many cases."
The report concluded that, despite some franchisors being publicly exposed for misconduct and exploitation, committee members had continued to receive compaints from franchisees that the behaviour was still happening.