In an ACCC investigation into Australian Loans Management Pty Ltd (ALM), the ACCC has once more confronted a franchisor seeking to avoid the compliance requirements of the Franchising Code of Conduct (the Code).

ALM endorsed and sold "licence agreements" for the financial broking business, Active Money (Aust) Pty Ltd (AM). Following an investigation, the ACCC determined that these "licence agreements" met the legal criteria of a franchise agreement. ALM had not complied with the Code because it did not believe that it was a franchise.

The ACCC investigation concluded that ALM had breached the Trade Practices Act 1974 (Cth) (the Act) by misleading licensees into believing that they were not entitled to the rights and remedies provided by the Code. The Code provides a number of safeguards to ensure prospective franchisees are fully informed about what they are buying including disclosure documents, a seven day cooling off period and the right to seek advice from independent experts.

The ACCC investigation determined that ALM had failed to:

  • provide its prospective franchisees/licensees with a copy of the Code, a disclosure document and the proposed franchise agreement at least 14 days before the prospective franchisee entered into the agreement or made a non-refundable payment to the franchisor
  • provide prospective franchisees with a seven day cooling off period
  • collect a signed statement from the prospective franchisee regarding the provision of independent legal, accounting or business advice.

Following the ACCC investigation, ALM admitted that the "licence agreement" was a franchise agreement that they had not complied with the Code and agreed that they had misled franchisees.

ALM and AM provided court enforceable undertakings (which were accepted by the ACCC) to:

  • implement measures to ensure Code compliance
  • provide existing franchisees with a copy of the Code, a disclosure document and a franchise agreement that complied with the Code
  • provide existing franchisees with the opportunity to cancel their existing licence agreements and receive a full refund of all monies paid to ALM.

While AM did not contravene the Code or the Act itself, it also offered an undertaking to the ACCC as ALM advised that going forward it intends that AM will act as the franchisor.

In a statement by ACCC chairman Graeme Samuel, franchisors were reminded once again that simply claiming that an agreement is not a franchise agreement will not protect franchisors seeking to circumvent the Code. The ACCC stressed that the Code's disclosure requirements are an essential feature of franchising regulation and any failure to comply with the code is unacceptable and unlawful.

As the ACCC continues to target franchisors who do not comply with the Code, this case teaches franchisors a costly lesson – a failure to correctly identify your business as a franchise and comply with the Code may provide franchisees with the opportunity to cancel their existing agreements and obtain a full refund of all monies paid to the franchisor.

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