A scathing report has ripped into former Retail Food Group (ASX: RFG) boss Tony Alford for being "evasive, inconsistent and generally uncooperative" during the parliamentary inquiry into Australian franchisors which took place between March and September 2018.
In its Fairness in Franchising report released yesterday, the parliamentary inquiry committee revealed that former CEO Alford, along with other former executives Alicia Atkinson and Andre Nell, refused to appear at a hearing despite being ordered to do so.
As part of its inquiry, the committee summoned the appearance of Alford, Atkinson and Nell at the public hearing to investigate alleged failings in RFG's strategies and conduct during their tenure.
Alford and Atkinson attempted to dispute the committee's power to force them into appearing, but both attempts at evasion were dismissed by the High Court.
When the trio of executives eventually took the stand, the committee noted that Alford was particularly unhelpful.
"The committee did not find Alford to be a reliable or credible witness," says the report.
"Alford was evasive, inconsistent and generally uncooperative. The committee was struck by Alford's professed, repeated ignorance about a range of matters which one would ordinarily expect a chief executive officer to be acutely aware.
"The committee considers that this reflects poorly on Alford and his tenure as chief executive officer of RFG."
Additionally, Alford's hearing testimony directly conflicted with other statements given by his succeeding CEO Richard Hinson on 11 September.
Hinson stated that when he filled Alford's shoes at RFG in January 2018, the company was complex and lacked suitable systems to deal with radical expansion.
"When I arrived I found the business with a strong foundation which had delivered strong growth over a number of years," said Hinson.
"It was also a business which had expanded rapidly through acquisitions, which led to complexity the acquired businesses could have been more effectively integrated and the transition could have been better managed."
Despite this testimony from Hinson coupled with allegations that RFG was "churning and burning" its franchises, Alford refuted the position.
"Alford also disagreed with Hinson's view that RFG had grown rapidly. By contrast, Alford claimed that 'the growth was programmed, it was steady and it was as required and as the opportunities arose'," said the report.
"And yet, during an eight-year period between 2007 and 2014, RFG grew its outlet numbers by over 2000 outlets."
This included more than 600 outlet acquisitions with Brumby's and Michel's, 110 with Pizza Capers and 800 with Gloria Jeans.
2007: Over 600 outlets acquired with Brumby's and Michel's
2010: 37 Big Dad's Pies outlets and 23 DCM Donuts outlets acquired
2011: 46 Esquires coffee outlets acquired
2012: 110 Pizza Capers outlets acquired
2012: 119 Pizza Crust outlets acquired
2013: 56 The Coffee Guy outlets acquired
2014: 236 Cafe2u outlets acquired
2014: 800 Gloria Jean's outlets acquired
Alford was also questioned about Hinson's evidence that RFG booked a $427 million impairment in assets and costs in financial year 2017-18 associated with closing as many as 250 franchise outlets.
"Alford stated that he had left RFG and therefore had no insight into the events that may have caused those outlets to be closed or the assets to be impaired," said the report.
The Fairness in Franchising report yesterday recommended that Australia's trio of corporate watchdogs investigate any potential breaches by RFG of Australian Consumer Law and the Franchising Code of Conduct.
The Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission and the Australian Tax Office will now begin investigating potential breaches including 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.
While RFG is undoubtedly its most damning case study, the report says it is the tip of the iceberg when it comes to a number of issues within Australia's franchising regulatory framework.
"The current inquiry has identified something much worse: systematic exploitation of some franchisees by a subset of franchisors and a regulatory framework that does not provide adequate protection against such practices," says the committee.
The committee has proposed substantial changes to the Franchising Code of Conduct and to the responsibilities and powers of the ACCC.
These change address disclosure, franchise registration, supplier rebates, whistle-blower protections, unfair contract terms, cooling off periods, exit rights, collective action, dispute resolution, binding commercial arbitration, alignment of industry codes, churning, education, and leasing arrangements.
The recommendations are designed to lift standards and conduct across the industry and to rebuild confidence in franchising in Australia.
At close of market RFG shares were trading at 16 cents, down 13.5% compared to previous trading day.
Read more about Retail Food Group here:
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Retail Food Group shutting stores and slashing costs on heavy losses
Retail Food Group restructure drives out CEO
Retail Food Group chairman flags asset sales, imminent "major restructuring"
Former RFG CEO accused of using franchisee to hide lossmaking stores
Alford ramps up his exit of RFG shares
Alford quits as RFG boss at top of his game
Business News Australia