Nick Xenophon (SA, Independent) Share this | Hansard source

During the adjournment debate on Tuesday, 23 February this year, I discussed Supatreats Australia; its Singapore based owner, Mr Stanley Tan; and the concerns raised with me about its Wendys franchise businesses in Australia. I made these remarks after consultation with former Wendys franchisees and others who had business dealings with Wendys. I emphasise that that is in relation to the Wendys master franchisor. I want it to be clear that I have been involved with issues relating to Wendys for some time. In terms of the concern of franchisees, that stretched back to the former owners of the business, Malaysian private equity firm Navis Capital. As I explained in my adjournment speech of 23 February, there were concerns raised with me about the manner in which the business was taken over by Mr Tan's company Supatreats in September 2014.

My intention in raising these concerns was never to disparage the Wendys brand. I know the backbone of this business is hardworking mum-and-dad franchisees who are operating in a tough, and sometimes ruthless, retail environment. That is why it is important to ensure the franchise structure they are working within supports them, and that any complaints about the master franchisor are dealt with fairly. In fact, I understand other members of parliament have raised these concerns with Mr Tan directly.

Shortly after my adjournment speech, I was contacted by Wendys through their Adelaide based solicitor Mr Greg Griffin. As a result, on two occasions I met at length both in Canberra and Adelaide on 1 and 8 March with Ms Karin Hattingh, CEO of Wendys Milk Bar, Wendys legal counsel Mr Tom Lovejoy and Mr Griffin. These meetings were both cordial and constructive. I appreciate the manner in which Ms Hattingh and Wendys reached out to me in order to give their perspective on a number of matters I raised in my speech. I want to take this opportunity to set out a number of matters they have put to me. So let me address a number of these specific issues they had with my speech.

At the time I was preparing my speech last month, it had been put to me that there were a number of former employees of Wendys former Adelaide based headquarters who were still owed entitlements after the company shifted their operations interstate. I have since been told that all employee entitlements have been paid in full, which includes wages, annual leave and superannuation. It is most regrettable that jobs were lost and the head office shifted from Adelaide to Sydney. The issue of the entitlements being paid to employees is confirmed in the Ferrier Hodgson report to creditors dated 28 July 2015, where on page 26 it confirms there are no outstanding redundancy payments owing. However, if there are any former employees—and it seems that would be unlikely—who believe they are still owed entitlements I encourage them to contact my office to provide me with further details.

Another issue that had been raised with me was the apparent disappearance of $700,000 from Wendys marketing fund after Mr Tan purchased Wendys Supa Sundaes. The marketing fund was, and continues to be, comprised of payments made by franchisees equivalent to four percent of weekly revenue. I have been advised by Ms Hattingh that these funds were used to purchase hot chip machines for the vast majority of their franchisees, given some already had them and others were not allowed by their landlords to use them. These machines are part of their longer term diversification strategy for Wendys stores. Clearly these pieces of equipment—worth up to $8,000 each—were about helping Wendys franchisees increase their turnover.

I make one final point about the marketing fund. Wendys tells me that some of the transactions that concerns were raised about, such as the purchase of chip fryers, were actually approved by the majority of franchisees. Clause 31(3)(a)(iii) of the Franchising Code of Conduct allows marketing fees to be spent in a way that is approved by the majority of franchisees. Along with information about the marketing fund, Wendys has put to me their view of the GST transaction I referred to in my previous speech. Wendys have argued that this allegation was based on a conversation about a transaction that never took place. And Wendys have a very different memory of that conversation than the other party involved. Of course the aggrieved party can properly raise this with the Australian Taxation Office if they wish to do so.

I readily acknowledge Wendys management for their willingness to take on board feedback from franchisees that I have passed on. Several franchisees had told me that they were concerned not enough promotional and marketing activity was taking place since Mr Tan took over and that it seemed the lines of communication between head office and individual franchisees had broken down. To their credit, Wendys took this feedback that I provided seriously and I believe they immediately took steps to rectify these concerns. Wendys management tells me new and, in their words, 'exciting' marketing activities have been planned for the near future and that franchisees will be receiving regular updates from Wendys head office about promotions going forward. This is of course welcome.

Since my adjournment speech, Wendys have furnished me with information explaining their position on the matters raised. In relation to the multimillion dollar dispute between On The Run stores and Mr Tan's company, Mr Tan's representatives assured me they would be open to a mediation in this matter if the other party was also open to mediation.

I note the cross claim by On The Run is one that alleges that an agreement with the former owner of Wendys, Navis, should continue to be honoured by Mr Tan. It is a complex and messy piece of litigation that will involve a court determining the extent of Mr Tan's liability for this franchise agreement involving dozens of outlets. It is hotly contested by both parties and I strongly encourage both to mediate if at all possible.

In particular, I would like to address issues that I raised in respect of the new entity that took over Wendys being involved in a phoenix scheme and funds being cannibalised from one company to another. On the face of it, based on the transactions, this would not appear to be an outlandish claim to make. However, the management of Wendys on behalf of Mr Tan have set out their position that the business they took over was a basket case and heavily in debt. They bought the intellectual property of the business for $10 million with the intention of the business growing, including expanding into Asia. In fact, they tell me they are already selling their premium Australian made ice cream used in Wendys stores into South Korea.

Their management assures me that Mr Tan's investment in the company and by extension in the franchisees will be a long-term one, and they want a rosy future for Wendys and their franchisees. So on the basis of that information provided to me it was unfair for me to call Mr Tan a 'corporate cannibal' and with the benefit of hindsight I regret saying that. It is also not fair to suggest a phoenixing arrangement on the basis of the additional information provided to me.

I am sure my communication with Wendys and their current and former franchisees will continue. I believe there are outstanding matters in dispute between franchisees and Wendys that must be dealt with, but I hope they can be dealt with fairly without recourse to litigation. I want nothing more than the franchisees of Wendys, small family businesses, to do well and to prosper. I will continue to work with them, advocate for them and to keep lines of communication open with Wendys management.

I propose to keep the Senate updated in the next few months, if not earlier, as to how franchisees of this iconic brand are doing, and whether any disputes have been resolved. Again, I am grateful for both franchisees and Wendys management for contacting me and I look forward to the master franchisor and franchisees prospering together.