A franchisor which failed to comply with the Franchising Code of Conduct has agreed to release franchisees from their agreements and get refunds, if they so choose, Australian Competition and Consumer Commission chairman Graeme Samuel said today.
"The ACCC has accepted court enforceable undertakings from Australian Loans Management Pty Ltd and Active Money (Aust) Pty Ltd," Mr Samuel said.
"Australian Loans Management (ALM) promoted and sold 'licence agreements' for a finance broking business called Active Money (AM). ALM claimed these licence agreements were not franchising agreements. ALM also failed to comply with the Franchising Code of Conduct."
The ACCC raised concerns with ALM that it may have breached the Trade Practices Act 1974 by representing the licence agreements were not franchise agreements when they were. The ACCC was also concerned that ALM had not complied with the requirements of the franchising code, specifically:
- that franchisors provide prospective franchisees with a copy of the code, a disclosure document and a copy of the franchise agreement at least 14 days before the prospective franchisee enters into a franchise agreement or makes a non-refundable payment to the franchisor
- that franchisors provide franchisees with a seven day cooling off period, and
- that before a franchise agreement is entered into the franchisor obtain a statement signed by the prospective franchisee indicating that the prospective franchisee:
- a) has been given advice about the proposed franchise agreement or franchised business by an independent legal or business advisor or an independent accountant; or
- b) has been told by the franchisor that the prospective franchisee should obtain that kind of advice but has decided not to seek it.
The franchising code regulates the conduct of franchisors and franchisees. It aims to ensure prospective franchisees are sufficiently informed about a franchise before entering into a franchise agreement. The code is a mandatory industry code and failure to comply with it constitutes a breach of the Trade Practices Act 1974.
ALM has admitted that its licence agreement is a franchise agreement and that it did not comply with the code. It also admitted it misled franchisees by stating that the licence agreement was not a franchise agreement and thereby potentially misled franchisees into believing that they were not entitled to the rights and remedies afforded by the code.
ALM and AM have undertaken to implement measures to ensure future compliance with the code, to provide existing franchisees with a copy of the code, a disclosure document and a proposed franchise agreement that complies with the code. ALM and AM will also provide existing franchisees with the opportunity to cancel their existing licence agreement and obtain a full refund of all monies paid to ALM.
Although AM did not engage in the admitted contravening conduct, it also offered an undertaking to the ACCC because ALM advised that going forward it intends AM to be the franchisor.
"The franchising code provides important safeguards to help ensure prospective franchisees are fully informed about what they are buying," Mr Samuel said. "The disclosure requirements are a key feature of the code and failure to provide a disclosure document is unacceptable and unlawful conduct. Franchisors cannot circumvent the code by simply claiming that the agreement is not a franchise agreement."
A copy of the court enforceable undertaking will be available on the ACCC's website.