Steve Irons (Swan, Liberal Party) Share this | Hansard source

I rise to support the member for Canning’s motion and acknowledge the four points he has made. But I also acknowledge the member for Blair and his support for the motion. I have spoken previously on the problems franchisees face and, in particular, about the unconscionable conduct by franchisors towards franchisees.

In the first point of the member for Canning’s motion he recognises the severe financial distress and hardship faced by a number of current and former franchisees throughout Australia as a direct result of franchisor conduct. This has occurred in my electorate of Swan and in many of my colleagues’ electorates as well. The franchise model, the behaviour and the conduct of some franchisors send the franchisees into bankruptcy. This spiral into bankruptcy does not start well into the commercial relationship but even before the ink is dry on the contract. Anyone without commercial experience who has not been involved in running a business will not understand why. Let me tell you why: it is because the model being sold by some franchisors is flawed and doomed to failure before the franchise starts.

Let me use the model being promoted by Michel’s Patisserie as an example, as it directly affected some of my constituents. The first time I saw a contract and the supporting figures provided by Michel’s I advised my constituent that I would not touch it, as it was not what I would call a successful model; I certainly would not pay for that model. The return on investment, without sufficient profits, was not forecast in the model that they provided. The constituent told me his bank agreed that the model was flawed, but Michel’s said their bank would finance it and, under Michel’s very professional guidance, the franchisee’s business would survive and flourish.

My constituent has now left the business. He has a huge debt to Michel’s because Michel’s continued to trade with him when his business was clearly insolvent. The purpose of that could only have been to drive him into a position where he would have to sell the franchise back to Michel’s for a ‘walk away’ sum of money and they could then sell the franchise to another potential client. This is known in the business as ‘churning’, an event all franchisors deny happens.

The second point in the member for Canning’s motion acknowledges that the franchisors must be held accountable for their unconscionable conduct, including nondisclosure, through a more stringent and determined application of existing trade practices legislation. I fully support this. Evidence shows that this does not happen or cannot occur under the current legislation, as the ACCC has failed to prosecute or pursue any franchisors to the benefit of the franchisees because of the flawed legislation. The current legislation has been around for some time under coalition and Labor governments, and there has been very little willingness to change the legislation to protect franchisees. Some franchisors have been expert in creating a history of evidence that supports their arguments that the franchisee was not performing to their model and therefore the franchisee deserves no protection or compensation from the authorities or the legislation in its current format. The members’ final two points are well stated also, but due to time restraints I will not acknowledge them.

In my experiences with franchising and business, the current legislation is flawed because it tries to address the problems from a principle of law and not from a factual situation. I recently spoke with the Minister for Small Business, Independent Contractors and the Service Economy in this very room and suggested that we need to make changes to the franchising laws to protect franchisees from predatory franchisors. The minister’s reply was to say that changes were made in March and he could not foresee that any more changes would be needed or were necessary.

I have a copy of a summary of the changes from a Sydney law firm, which concludes:

Some of the new provisions are onerous (such as the requirement of disclosures within 14 days). Franchisors may need to review their systems so they can more promptly disclose relevant information to franchisees.

I suggest the following, which will take us to the heart of the matter. Firstly, if you are running a business selling franchises, you should make available all disclosures prior to the signing of the contract. To have only a cooling-off period of seven days for the franchisee but then a 14-day window of disclosure by the franchisor does not match up. The franchisee should have seven days after the full disclosure by the franchisor. Secondly, the contract should be made null with a full refund to the franchisee if the model they sell and figures they provide are incorrect. This is normal practice in business, but the franchisors always use the argument that the franchisee is not meeting their model requirements. Thirdly, once the process of mediation has started, the franchisor should not be allowed to close down the business of the franchisee until that mediation is finalised and agreed to by both parties. One of my constituents was in the process of mediation when he was closed down. Fourthly, the ACCC need to be given resources and legislation to pursue unconscionable conduct by franchisors. I would provide them with some live cases to get stuck into, but unfortunately they are not able to assist. To all franchisees of Australia: we have a team of dedicated coalition members and senators who are committed to furthering your cause and making sure we protect your livelihood. (Time expired)

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