Fines worth $150,000 have been handed down to a West Australian food business that was found to have breached the Franchising Code of Conduct.
Pastacup franchisor Morild, and its co-founder and former director Stuart Bernstein, were fined $100,000 and $50,000 respectively, after they were found to have not provided a disclosure statement to franchisees.
The Federal Court found that Morild breached the code by not providing franchisees with an accurate disclosure statement, given that it did not mention Mr Bernstein’s previous directorships of two other Pastacup franchisors that fell into insolvency.
Commenting on the verdict, ACCC deputy chair Dr Michael Schaper said: “These are the first court ordered penalties for breaches of the new Franchising Code. These significant penalties should send a strong message to other franchisors that they must meet their disclosure obligations.”
“The Franchising Code requires franchisors to provide prospective franchisees with a disclosure document which contains important information about the franchise and the franchisor. Full and accurate disclosure by the franchisor is essential to enable prospective franchisees to make informed business decisions.”
Morild will also be held liable for a contribution towards the ACCC’s costs in prosecuting the case.
The revised Franchising Code of Conduct came into effect from 1 January 2015, which included a requirement for all franchisees to be given a disclosure document prior to the commencement of a franchise agreement.
This disclosure statement must include information on the business experience of each officer within the franchisor for the past 10 years, as well as arrange other financial information and contact details for current and former franchisees.