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The Australian Competition and Consumer Commission (ACCC) has commenced proceedings in the Federal Court against Megasave Couriers Pty Ltd (Megasave) for allegedly misleading prospective franchisees in regards to financial turnover.

what the ACCC is alleging

In a nutshell, the ACCC is alleging that Megasave and its sole director made “false promises of a secure initial income for potential franchisees in the form of guaranteed weekly payments, which influenced potential franchisees to decide to buy a courier franchise from Megasave”.

Specifically, the ACCC has stated that for the past financial year – at least – Megasave communicated that prospective franchisees would receive guaranteed minimum weekly payments for a set period of time (in most instances $2,000 a week for the first six months). From at least June 2019 to April of this year, most prospective franchisees were also led to believe that their minimum annual income would be $91,000.

These representations were made to the interested parties through publicly available promotional materials including the Megasave website and online advertisements. Documents provided during the due diligence also reinforced these representations. The ACCC alleges that Megasave’s sole director, Gary Bourne, knowingly distributed these materials to the prospective franchisees.

In spite of the fact that existing franchisees were not receiving the promised minimum weekly payments and that the payments they did receive fell short of the annual income that had been guaranteed, the ACCC alleges that Megasave continued to provide these figures to prospective franchisees. More than 30 existing franchisees complained to the ACCC of financial difficulties stemming from these misrepresentations.

Megasave allegedly also took things one step further in December last year, introducing a requirement for franchisees to submit weekly sales leads on the payment of the minimum weekly payments. This requirement was not disclosed prior to the purchase.

what should franchisors learn from this?

Under the Franchising Code, franchisors have an obligation to provide disclosure and must be honest and transparent. Failing to accurately represent the nature of your business and what prospective franchisees can reasonably expect can get a franchisor in hot water.

The ACCC has stated that the alleged false and misleading representations in this matter “caused significant financial hardship and stress to franchisees … In a number of cases, these franchisees had taken out loans or used life savings to purchase the Megasave franchise”.

Heavy penalties can apply to both franchisors and directors found guilty of this conduct. The ACCC has said that it is seeking penalties, redress for franchisees, disqualification orders against Mr Bourne, declarations, an order as to findings of fact, and costs. It is also seeking interlocutory and final injunctions to prevent the alleged representations from being continued.

In June, initial orders were obtained by the ACCC to freeze the assets of Megasave and Mr Bourne, as well as other entities controlled by Mr Bourne. These orders have now been replaced by an undertaking to the Court by Mr Bourne in broadly similar terms and will remain in place until revoked by the Court.

Megasave is relatively new to the franchising world (since approximately April 2019) however, that is no excuse. All franchisors have an obligation to meet the requirements of the Franchising Code as well as any other legislation applicable to their area of business.

Now, when businesses are struggling with the unprecedented impact of COVID-19, it is arguably more important than ever to ensure that you are giving your franchisees the best chance to succeed. Given how much your financial situation may have changed over the last few months, it would be wise to review the information that you are providing prospective franchisees to ensure that it is an accurate representation.

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accc pursues franchisor for false and misleading promises to franchisees

28 July 2020
racha abboud

The Australian Competition and Consumer Commission (ACCC) has commenced proceedings in the Federal Court against Megasave Couriers Pty Ltd (Megasave) for allegedly misleading prospective franchisees in regards to financial turnover.

what the ACCC is alleging

In a nutshell, the ACCC is alleging that Megasave and its sole director made “false promises of a secure initial income for potential franchisees in the form of guaranteed weekly payments, which influenced potential franchisees to decide to buy a courier franchise from Megasave”.

Specifically, the ACCC has stated that for the past financial year – at least – Megasave communicated that prospective franchisees would receive guaranteed minimum weekly payments for a set period of time (in most instances $2,000 a week for the first six months). From at least June 2019 to April of this year, most prospective franchisees were also led to believe that their minimum annual income would be $91,000.

These representations were made to the interested parties through publicly available promotional materials including the Megasave website and online advertisements. Documents provided during the due diligence also reinforced these representations. The ACCC alleges that Megasave’s sole director, Gary Bourne, knowingly distributed these materials to the prospective franchisees.

In spite of the fact that existing franchisees were not receiving the promised minimum weekly payments and that the payments they did receive fell short of the annual income that had been guaranteed, the ACCC alleges that Megasave continued to provide these figures to prospective franchisees. More than 30 existing franchisees complained to the ACCC of financial difficulties stemming from these misrepresentations.

Megasave allegedly also took things one step further in December last year, introducing a requirement for franchisees to submit weekly sales leads on the payment of the minimum weekly payments. This requirement was not disclosed prior to the purchase.

what should franchisors learn from this?

Under the Franchising Code, franchisors have an obligation to provide disclosure and must be honest and transparent. Failing to accurately represent the nature of your business and what prospective franchisees can reasonably expect can get a franchisor in hot water.

The ACCC has stated that the alleged false and misleading representations in this matter “caused significant financial hardship and stress to franchisees … In a number of cases, these franchisees had taken out loans or used life savings to purchase the Megasave franchise”.

Heavy penalties can apply to both franchisors and directors found guilty of this conduct. The ACCC has said that it is seeking penalties, redress for franchisees, disqualification orders against Mr Bourne, declarations, an order as to findings of fact, and costs. It is also seeking interlocutory and final injunctions to prevent the alleged representations from being continued.

In June, initial orders were obtained by the ACCC to freeze the assets of Megasave and Mr Bourne, as well as other entities controlled by Mr Bourne. These orders have now been replaced by an undertaking to the Court by Mr Bourne in broadly similar terms and will remain in place until revoked by the Court.

Megasave is relatively new to the franchising world (since approximately April 2019) however, that is no excuse. All franchisors have an obligation to meet the requirements of the Franchising Code as well as any other legislation applicable to their area of business.

Now, when businesses are struggling with the unprecedented impact of COVID-19, it is arguably more important than ever to ensure that you are giving your franchisees the best chance to succeed. Given how much your financial situation may have changed over the last few months, it would be wise to review the information that you are providing prospective franchisees to ensure that it is an accurate representation.