RFG to pay certain franchisees as ACCC settles legal action

The ACCC has accepted a court-enforceable undertaking from Retail Food Group Ltd (ASX: RFG) in which RFG, the operator of many well-known franchising brands, has agreed to make payments to and waive historical debts of a number of affected current and former franchisees, in relation to the purchase of certain corporate stores by these franchisees.

RFG will also pay $5 million to franchisees of Michel Patisserie stores who paid levies into that franchise’s marketing fund between 1 July 2012 and 30 June 2017.

As a consequence, the parties have agreed to settle the proceedings which the ACCC commenced against RFG in December 2020, in relation to alleged unconscionable conduct and false and misleading representations made in its dealings with franchisees.

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

RFG has acknowledged these allegations without admission and agreed to make payments to some affected franchisees, based on the purchase price paid for their franchise less any amounts of outstanding vendor finance loans. RFG will also waive historical debts associated with these corporate stores.

The ACCC had also alleged certain payments had been made from the Michel Patisserie’s marketing fund for expenses which were not legitimate marketing expenses and had not been adequately disclosed to franchisees nor agreed to by a majority of franchisees.

RFG will pay $5 million to Michel’s Patisserie franchisees who paid marketing levies during the relevant period, representing an agreed percentage of the marketing fees they contributed to the Michel’s Patisserie marketing fund in the relevant period.

“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,” Ms Cass-Gottlieb said.

RFG will be required to regularly report to the ACCC about the actions taken and payments made, under the undertaking.

RFG has also undertaken to implement a compliance program in relation the Australian Consumer Law and the Franchising Code of Conduct.

RFG will pay a contribution to the ACCC’s legal costs.