In January 2015 the ACCC took measures to revise the ‘Franchising Code’, a document pertaining to specific codes of industry conduct as they relate to business franchises.
Yesterday, 22nd September 2016, the ACCC announced that they have instituted their first proceedings in the Federal Court, relating to penalties under the revised Franchising Code. Specifically, the ACCC alleges “that Morild Pty Ltd, the current franchisor of the Pastacup system, and its former director, Mr Stuart Bernstein, breached the Franchising Code by failing to disclose the fact that he had been a director of two previous franchisors of the Pastacup system that became insolvent.”
The ACCC insists that all franchisors are required to outline their relevant business experience in their disclosure agreement. Such disclosure ensures that potential franchisees are assured absolute transparency before making a significant financial commitment to any franchise. In the case of the Perth food franchise, Pastacup, the ACCC will allege that a failure to disclose details of previous insolvency presented information to potential franchisees that was misleading. As Dr Schaper explains; “People who decide to buy into a franchise system often put their savings on the line and, in doing so, should be able to make informed decisions on the basis of full and accurate disclosure by the franchisor.”
From a legal perspective, the ACCC’s announcement serves to highlight the responsibility of legal practitioners to lead their clients and prospective franchisors towards full and honest disclosure, specifically as it relates to their business acumen when drafting their disclosure documents. Further to this, it must be highlighted that franchisors risk steep penalties should they opt to provide misleading information to potential franchisees.