ACCC takes action against Pastacup for alleged breaches of Franchising Code

22 September 2016

The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against Pastacup’s current franchisor Morild Pty Ltd (Morild) and that company’s former director Mr Stuart Bernstein alleging breaches of the Franchising Code of Conduct.

Mr Bernstein co-founded the Pastacup franchise in 2008 and has managed and been a director of two previous franchisors of the Pastacup franchise system that became insolvent.

The mandatory Franchising Code of Conduct requires a franchisor to provide prospective franchisees with a disclosure document that, amongst other things, discloses the relevant business experience of all its officers. The ACCC alleges Mr Bernstein’s directorship and management of two previous Pastacup franchisor companies that became insolvent should have been disclosed by Morild to potential franchisees. The ACCC also alleges that Mr Bernstein was knowingly concerned in Morild’s conduct.

“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,” ACCC Deputy Chair Dr Michael Schaper said.

“Last year’s changes to the Franchising Code require increased disclosure prior to entering a franchise agreement. The ACCC has made it an enforcement priority to ensure small businesses receive the protections of industry codes of conduct, including the Franchising Code.”

“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 business decisions on the basis of full and accurate disclosure by the franchisor,” Dr Schaper said.

The ACCC is seeking declarations, injunctions, penalties, findings of fact and costs.

Background

On 1 January 2015, a revised Franchising Code of Conduct came into effect. The revised Code introduced financial penalties and infringement notices for serious breaches of the Code.

Businesses can access further information on the Code from the ACCC website: Franchising Code of Conduct.

The ACCC sponsors a Pre-Entry Franchise Education Program, developed by Griffith University’s Asia-Pacific Centre for Franchising Excellence.

Release number: 
MR 175/16
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