Allegations against Morild Pty Ltd of breaching Franchising Code of Conduct

Friday 23 September 2016 @ 8.55 a.m. | Trade & Commerce

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

The new Franchising Code of Conduct is contained in Sch 1 to the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (SR 2014, No 168) (Cth).

Background

Mr Bernstein co-founded the Pastacup franchise in 2008 with Norwegian partner Siri Solumsmoen and has managed and been a director of two previous franchisors of the Pastacup franchise system that became insolvent. The franchise has grown to more than 20 stores in Western Australia and one in NSW.

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.

Code requirements

The mandatory Code 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 allegations

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.

Reaction from the ACCC Deputy Chair

Commenting on this matter in a recent ACCC Media Release, the ACCC Deputy Chair, Dr Michael Schaper said:

“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. Last year’s changes [2015] 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.”

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

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

Sources:

Article from businessnews.com.au

ACCC takes action against Pastacup for alleged breaches of Franchising Code – ACCC Release MR 175/16

Related Articles: