Behind the Headlines with Jason Gehrke

Jason Gehrke | Director | Franchise Advisory Centre

This article appears in the Mar/Apr 2016 issue of Business Franchise Australia & New Zealand

Dick Smith collapses amid calls for senate inquiry

The collapse of electronic retailer Dick Smith has devastated consumers with valueless gift cards and non-refundable deposits, and led to independent senator Nick Xenophon calling for a senate inquiry into the chain’s continuous disclosure and its $520 million float.

The 393-store chain continues to trade after the appointment of voluntary administrators earlier this week, however its 3,300 staff are concerned about their jobs and entitlements, as well as facing the anger of customers who bought gift vouchers, online items yet to be delivered, or paid deposits that will not be honoured by the administrators.

Senator Xenophon has called for an inquiry into the company’s collapse, as well as the role its former private equity owners, Anchorage Capital Partners, played in setting it up for failure amid media reports that Anchorage stripped Dick Smith of much of its valuable inventory before the listing, forcing the newly-listed company to take on unsustainably high levels of debt to rebuild its inventory. The Australian Competition and Consumer Commission (ACCC) is also reported to be concerned with the manner in which Dick Smith promoted the sale of now valueless gift  cards in the lead-up to the collapse.

All Dick Smith stores continue to trade in administration, however it is likely that stocks will not be fully replenished and that any sale of the business will force the closure of a significant number of outlets.

Home ventilation franchise collapses

Home ventilation franchise Ventis HQ which is partly owned by former Wallabies captain George Gregan and has eight franchisees, has collapsed into administration.

Administrators suspended the business’ operations over the Christmas period and are assessing the likelihood of continued trading as they field expressions of interest from potential buyers.

Franchisee engages underworld figure to mediate with franchisor

A Melbourne franchisee of the Bank of Queensland engaged underworld figure Mick Gatto and his associates John Khoury and Anthony Swords to assist with a mediation after his franchise was compulsorily acquired by the bank.

According to a media report, the former owner of the Bank of Queensland franchise at Mt Waverley hired Gatto Corporate Solutions to help negotiate a higher payout from the bank after it paid him $265,000 for the business several months after lending him $500,000 to buy his partner out of the business, and which valued the business at close to $1 million. However the Bank of Queensland has refused to deal with Gatto Corporate Solutions because the presence of Gatto and his colleagues “intimidated” senior staff.

Franchise conman Peter Foster raided over murder plot

Franchise conman Peter Foster continues to make headlines less than three months after being released from jail for his role in the SensaSlim franchise scam which defrauded more than $6 million from 110 franchisees, this time over a plot to murder a private investigator.

Properties in New South Wales and Queensland linked to Foster were raided by police over allegations that he plotted to murder a private investigator who uncovered millions of dollars stashed abroad from the proceeds of another Foster scam, online gambling company Sports Trading Club.

Carpet cleaning franchisor fined $215,000 for fake testimonials

The Federal Court has ordered the franchisor of the Electrodry Carpet Cleaning business to pay $215,000 in penalties for misleading consumers by posting fake testimonials about its carpet cleaning services on the internet, and inducing its franchisees to also post fake reviews on popular online product review websites.

The fine followed an investigation by the Australian Competition and Consumer Commission (ACCC), and was accompanied by other orders including injunctions, corrective advertising, and that Electrodry contribute towards the ACCC’s costs.

Franchise litigants behind crash of My Baby Warehouse

The former operators of 11 IGA supermarkets which were placed into administration earlier this year are also the owners of the My Baby Warehouse chain of retail stores that collapsed last week owing staff more than $1 million in entitlements.

The 11-store chain owned by the Arora Group of entities is accused of blackmailing suppliers, with witnesses claiming that brown paper bags of cash would be dropped off.

Owners Ajay and Poojay Arora were paid an unspecified sum earlier this year after they sued IGA owner Metcash after paying $9 million for 16 supermarkets in New South Wales in 2012 and 2013, but claimed that they would not have entered into the deal if they had received information in a franchise disclosure document beforehand.

The plaintiffs also sought a declaration that Metcash was in fact a franchise and therefore had breached the Franchising Code of Conduct, however the confidential settlement meant no such declaration was made.

Domino’s acquires stake in German operations

Domino’s Pizza Enterprises (DPE), the Brisbane-based operators of Domino’s in Australia, New Zealand, Japan and Europe have added another country to their growing portfolio through a joint-venture with a UKbased Domino’s operator to acquire and grow a pizza chain in Germany.

The AUD$68 million acquisition will be operated by a new company that will be two thirds owned by DPE, with the balance held by its British partner.

Visas safe for 7-Eleven workers

The Australian government has confirmed that exploited and underpaid 7-Eleven workers on student visas will not be deported for breaching their visa conditions by working more than 20 hours per week, however all visa holders are expected to comply with their visa conditions going forward.

Maurice Blackburn, a law firm acting for exploited workers received the government undertaking which applies to workers who assist in investigations into poor treatment and underpayment. The firm has represented more than 40 workers to date, who have claimed more than $1.2 million in underpayments with some workers originally paid as little as 59c an hour.

7-Eleven wage panel raids 50 stores

The independent panel appointed by 7-Eleven to investigate the exploitation of workers among the network’s 620 stores have raided 50 stores across Australia in which the worst exploitation is believed to have occurred. The panel, headed by former ACCC chairman Allan Fels is assisted by accounting firm Deloittes, who provided 150 staff for the unannounced store visits to seize documents including rosters that are not available from 7-Eleven’s head office.

The retail chain has been embroiled in a worker underpayment scandal since August 31, when a joint Fairfax media / ABC Four Corners report alleged that underpayment and exploitation of workers on foreign student visas was rife throughout the network.

Since then, 7-Eleven has appointed an independent panel to investigate and authorise payments to exploited workers, has fronted a hostile senate inquiry, and re-signed 90 per cent of its operators to a new franchise agreement that increases their share of gross profits but increases their compliance obligations.

To date, 100 exploited workers have received outstanding wages totalling $2.3 million, however it is expected potentially thousands more claims will be presented to the independent panel over time.

Retail chain with 340 outlets up for sale

Tobacco Station Group (TSG), a retail chain with more than 340 franchised outlets and head office turnover of $4.7 million is up for sale, according to a media report.

The sale includes all business assets including trademarks and intellectual property, with 65 per cent of franchisees under agreements that have between two and five years left to run.