Don Randall (Canning, Liberal Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

Last year I brought to the attention of this parliament a situation regarding my constituents who had purchased Lenard’s chicken franchises—Rochelle Bailey, a former franchisee of Lenard’s Mirrabooka, and Leanne McCullagh, who had the Lenard’s franchise in Livingston. This franchise issue is something that I wish to make sure this parliament understands will not go away, and I intend to take it up until we get some help in a number of areas.

I take the opportunity to update the House on the circumstances of my constituents’ situation and the continued and long saga and sad, financially destroying issue that the parties are involved in. The stories of franchisees going broke and losing all their assets are becoming more frequent. In the case of Lenard’s, my constituents have lost their homes and all of their financial resources. As I advised the chamber last year, the problem is where unscrupulous franchisors are often deliberately taking the opportunity to send these people to the wall because there is far more profit in sending a business to the wall, reselling it and starting it up again. It is a quick turnover.

In an ideal world legitimate franchisors operate by charging the franchisees a fee—let us say in the case of Lenard’s a fee of about $300,000. This is payable by all franchisees no matter how big or small the franchise is. These fees are invested in training, marketing and advertising—services that provide the franchisor with a profit to their core business. However, this is where the rub occurs. There are franchisors who take advantage of their franchisees. They recycle or churn their franchise, forcing people against the wall through a lack of business support. They provide little or inadequate advertising and poor management. They use physical and financial intimidation and serious bullying, as my constituents experienced firsthand. By the time these franchisees seek help with what is going on, they are already nearly losing their homes and assets and cannot afford litigation, as has happened to my constituents.

Churning, as it is called, has become a common word in the franchising industry. The practice is becoming more frequent with franchisors intentionally targeting a percentage of their franchisees for destruction, simply to make more money out of them. With the way the franchisors operate, the failure of the business is easy to pin on the franchisee, many of whom have left solid careers to operate their businesses. This is the easy way out: to blame the lack of business acumen of the franchisee. In many cases and in fact in most cases, it is wrong.

Once the franchisees are in financial difficulty, the franchisor uses the contract default provisions that have been deliberately put into the agreement to get rid of these franchisees. They then acquire the franchise for resale at something like 20 times less the nominal fee—offered to the desperate franchisee to leave. Excuse my French, but it is often called P-off money.

The fact that there are rogue franchisors operating is something that the ACCC chief has finally admitted to on Radio National. It is real, so Mr Samuel does understand that this is a real situation. This is something that the ACCC had turned a blind eye to for some time but in October last year they could not ignore it any more. My colleague, the member for Gilmore, Joanna Gash, has referred to this process as orchestrated robbery, and I hold to the attention of this House the case of her constituent, a Ms Deleeuw, who is continuing to go through a very expensive and financially ruining situation with Bakers Delight, another franchise organisation that has been named in this place previously. I am sure the member for Gilmore will see that one through as well.

I am informed by the National Federation of Independent and Small Businesses that the profit margin of this unconscionable behaviour is many times that of the legitimate businesses and goes straight to profit before tax. The government takes 30 per cent of this in company tax and perhaps unwittingly becomes an accessory to white-collar crime. This is a serious issue in itself and I have raised this, as I have mentioned in the House before, with Mr Martin, the ACCC small business commissioner. I am seeking a meeting with him again to make sure that the ACCC uses its powers to do something about this issue before it goes any further. In fact, we know that some people have actually harmed themselves and, I am told, taken their lives because of the desperate situation they were in. So I appeal to the ACCC to use their powers as they were intended.

I do not intend to go into the intricacies of the Trade Practices Act or the Franchising Code of Conduct, which is codified in legislation; suffice it to say that section 51AC of the Trades Practices Act, relating to unconscionable conduct in relation to business transactions, codifies the law in this area. Most of the interested parties agree that the law is sufficient, as I have said. However, the big problem is enforcement by the ACCC, and I encourage them to use their powers. This was borne out in a letter to Mr Samuels from Mr Ray Borradale of Queensland, but I will not have time to go through that letter.

In the case of Lenard’s, many will be aware of the tragic circumstances surrounding the death of the Lenard’s master franchisee in WA, Mr Frank Cianciosi. His business partner, Gerritt Heijne, has been charged with his murder, so I will not go any further into that because it is before the courts. I am not aware of all the facts of this case and I am not intending to dwell on the tragedy. However, I raise it in the context of what it now means in terms of seeking a resolution—that is, compensation—for my constituents, one of whom will shortly be made bankrupt as a result of this horrific franchise experience.

Should my constituents wish to pursue their claims, it becomes unclear who or what entity they would claim against, given the fact that one is dead and one is in court. In any case, any compensation payable could be tied up in the estate of the deceased, and battles over the estates, as we know, can take many years. It would seem appropriate in the circumstances that Lenard’s executive management take some responsibility and at least recognise that their WA master franchisees played a significant role in the demise of the Lenard’s businesses of my constituents. My constituents should not have to wait any longer for compensation. Such actions by Lenard’s executives in Queensland would send a strong message that they do not condone the practices emerging from these franchising arrangements. My constituents have advised me that Lenard’s have told the WA franchisees that they now recognise that there were problems. I have also been informed that there are a number of outstanding debts owed by the master franchise company, which adds to the uncertainty as to my constituents receiving any compensation for their significant losses.

I am pleased that the Western Australian government has launched an inquiry into the operations of franchises in that state. I know that my constituents have made submissions to that inquiry. The purpose of the inquiry is to enhance the franchising business environment and it will examine the issues of fairness in franchising operations. I trust that some positive action will come from that local inquiry. John Farrell, the president of the NFIB, has worked tirelessly on these cases and continues to fight for stronger enforcement against rogue operators and better rights for franchisees. His assistance to people in the direst circumstances is greatly appreciated.

Finally, since I first raised this issue in the parliament I have been approached by dozens of disgruntled franchisees and former franchisees throughout the country seeking my assistance. However, I have not gone on a national crusade on this issue, as I probably should, because it is so widespread. I have confined my efforts to those constituents in the electorate of Canning but I continually get representations from people who have suffered at the hands of Lenard’s, of Midas and of Bakers Delight on the same issues of churning. I ask the ACCC once again to use their powers to deal with these issues before they get out of hand. The people I have mentioned want some action. They have horrific stories.

It is time that action were taken to redress this situation as it is becoming all too frequent. As I have said, there are already others that have been outlined to me, and I have received many emails, of which I now have a very thick file. I will be happy to hand it over to Mr Martin, from the ACCC, should he have the meeting with me that I have been seeking for some time. Families are going broke and losing their homes all because the big guys want to make more money using whatever means they can in this franchising malaise.