Retail Food Group to pay franchisees $13m after ACCC settles legal proceedings

Retail Food Group to pay franchisees $13m after ACCC settles legal proceedings

The operator of franchising brands Donut King, Crust, Pizza Capers, Brumby’s and more, Retail Food Group (ASX: RFG), will make payments of $13 million to a number of franchisees after the company reached a settlement with the consumer watchdog.

Announced today by the Australian Competition and Consumer Commission (ACCC), the watchdog has accepted a court-enforceable undertaking from RFG in which it will make payments and waive historical debts of several affected current and former franchisees in relation to the purchase of certain corporate stores.

RFG and the ACCC have agreed to settle the proceedings which the watchdog commenced in December 2020 in relation to allegations of unconscionable conduct and false/misleading representations made in its dealings with franchisees.

According to the ACCC, between 1 January 2015 and 31 December 2018, RFG sold or licensed a number of corporate stores to franchisees. The watchdog alleged that RFG knew that these stores had been operated at a loss but did not disclose this to the purchasers prior to the sale.

RFG has acknowledged the dismissed proceedings without making any admission as to the ACCC’s allegations, and will not pay a pecuniary penalty or be subject to any injunction or adverse publicity order.

However, it will pay $8 million to franchisees who acquired the corporate stores in question, and will waive $1.82 million in franchise debts as part of the undertaking.

The watchdog also alleged certain payments had been made from the Michel’s Patisserie’s marketing fund for expenses which were ‘not legitimate marketing expenses’ and had not been disclosed to franchisees.

As  such, the company will pay $5 million to franchisees of Michel's Patisserie stores who paid levies into that franchise’s marketing fund between 1 July 2012 and 30 June 2017, representing an agreed percentage of the marketing fees they contributed to the fund.

“We are pleased that RFG has agreed to make payments to certain impacted franchisees,” ACCC chair Gina Cass-Gottlieb said.

“We initially took this action because we were concerned with the alleged conduct and the impact on a number of small business operators.

“This settlement, which consists of payments to franchisees and waivers of debt totalling approximately $10 million, provides a more certain and beneficial outcome for affected franchisees than would likely result from the continuation of the ACCC’s long-running legal proceedings.”

The company will also be required to regularly report to the ACCC about the actions taken and payments made under the undertaking.

“RFG’s interests have always been and remain connected to its valued franchise partners,” RFG said.

“RFG considered that the resolution of historical matters the subject of the ACCC’s proceeding on these terms will allow it - under the recently announced extended leadership of Peter George - to maintain its forward-looking focus.

“This includes the continued development, implementation and enhancement of commercial initiatives designed to improve its franchise system for the benefit of all stakeholders.”

Shares in RFG are up 15.94 per cent to $0.080 per share at 10.21am AEDT.

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