Following the introduction of the Franchising Code of Conduct in
January of last year, the ACCC has shown that it won't hold
back in enforcing requirements.
In September, the ACCC announced that it had commenced
proceedings in the Federal Court against Morild Pty Ltd and its
former director, Stuart Bernstein. Morild Pty Ltd is the current
franchisor of Pastacup, a Western Australia-based ready-to-eat
The ACCC alleges that Mr Bernstein's directorship and
management of two previous Pastacup franchisor companies which
became insolvent should have been disclosed by the current
franchisor, Morild Pty Ltd, as part of the mandatory disclosure
documents. The Code requires that a franchisor's disclosure
document include whether the franchisor, a director of the
franchisor, an associate of the franchisor and/or a director of an
associate has been bankrupt, insolvent or externally-administered
in Australia during the last 10 years.
In its proceedings, the ACCC alleged that this constituted a
failure to disclosure materially relevant facts, on the basis that
a potential franchisee may be dissuaded if Mr Berstein's
previous history and relationship with the insolvent companies had
been disclosed. ACCC Deputy Chair, Dr Michael Schaper, stated that
potential franchisees needed to be able to "make informed
business decisions on the basis of full and accurate disclosure by
Financial penalties of up to $54,000 against Morild Pty Ltd and
Mr Bernstein have been sought by the ACCC, along with further
relief including declarations, injunctions and costs. Dr Schaper
commented that the ACCC was pleased that the revised Code provides
it with the ability to be able to seek such penalties and that he
hoped that this would "act as a significant deterrent to
While we continue to await the outcome of these particular
proceedings, this matter highlights the importance of disclosure
documents containing all necessary and materially relevant facts
about the franchise, the franchisor and the franchisor's
The ACCC appears to be focusing on compliance with the Code, and
franchisors should pay particular attention to the information
contained in their disclosure documents to ensure that they
aren't inadvertently (or otherwise) failing to disclose a
materially relevant fact. As shown in this matter, the ACCC
isn't hesitant in pursuing action against a franchisor where
they have breached the Code.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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