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

In years gone by, you would have been hard-pressed to find anyone in Australia who did not know and love Wendys ice cream. The iconic franchise made its mark in Australia in 1979 when entrepreneurs Geoff Davis and Phil Rogers opened the doors of the first Wendys store in a South Australian shopping centre. The brand's popularity quickly spread, with some 300 stores operating in Australia and New Zealand by the late 1990s. Wendys became a regular fixture in shopping centres, with its bright pink store fit-outs catching the eye of young and old alike.

Over the years, thousands of mum and dad investors signed up to Wendys franchise agreements. They saw the business as an opportunity that rewarded hard work with fair and reasonable returns—and, for a while, that was the case. These franchises, at their peak, employed approximately 3,000 people in total, many of whom were young people working at their first after-school jobs.

For a period of time, life was sweet, but the good times were not to last. Wendy's business model was in trouble as a result of McDonald's entering the soft serve market and being able to undercut Wendy's products as loss leaders. In January last year, SmartCompany reported of horror stories involving Wendy's franchisees, with as many as 116 stores having either collapsed or been taken over by management from 2006 to 2014. Many stores saw their value plummet, leaving people out of pocket and unable to pay their debts.

One Wendy's franchisee, Peter Coventry, has told me that he and his wife had locks changed on their Alice Springs stores during a dispute with the company and received letters saying their contracts would not be renewed after they spoke out about sharp practices involving Wendy's management, including price gouging of franchisees by charging exorbitant fees for their supplies. The SmartCompany report of January last year stated that these incidents of sharp and unfair practices appeared to have taken place between 2006 and 2014, when Wendy's was owned by Malaysian private equity firm Navis Capital.

A case reported by SmartCompany involved Jenny Bruce and her husband, Graham, who were previously the franchisees of Wendy's stores at Charlestown and Maitland on the New South Wales coast. Despite having won a retailer of the year award for the Charlestown shopping centre, the profitability of the business was dwindling—but they struggled on. The Bruces found their circumstances took a downward spiral when Wendy's put another two stores in nearby shopping centres, which went bad for those other franchisees and the Bruces were convinced by Wendy's to take them over. Those stores bled the Bruces because of the undertakings given by Wendy's management. The final nail in the coffin came when the then management of Wendy's invoked a clause in their franchise agreement to take over the finances for the stores. The Bruces ended up losing their house, financially unable to have their day in court.

After the nightmare of the management of Navis, along came a seeming saviour for the Wendy's franchisees. In September 2014, along came Singapore based businessman Stanley Tan. His Singapore registered company, Global Food Retail Group Pte Ltd, acquired the Australian Retail Franchise Group Pty Ltd for $10 million. Mr Tan is well known in Asia as Chief Executive of Global Yellow Pages. The Australian Retail Franchise Group had two subsidiaries. The first was Wendy's Supa Sundaes Pty Ltd, the master franchisor for Wendy's stores, and the second was Innovation Ice Cream Pty Ltd, the ice cream manufacturer and supplier to Wendy's Supa Sundaes.

At that time, Wendy's Supa Sundaes was the lessee for around 170 retail sites across the country. This included leasing a building at 209 Fullarton Road, Eastwood in Adelaide as Wendy's corporate headquarters. After tough times for so many of these small businesses, Mr Tan promised better support, better returns and a better future for the franchisees—but it seems the only thing Mr Tan had in mind was better profits for his companies. That came at the expense of the franchisees, who trusted him to keep their businesses going. This trust would soon be betrayed by a series of cold, calculating moves that would destroy the livelihoods of so many small family businesses.

The main asset involved in the purchase of the Australian Retail Franchise Group was the intellectual property behind the iconic Wendy's brand. After purchasing Wendy's Super Sundaes and its ice cream supplier, Mr Tan established three new companies, each using the name Supatreats Australia. Mr Tan handpicked his associates and his family members to run these Supatreats companies. Then, in March 2015, Mr Tan convinced hardworking franchisees to move their businesses from the old Wendy's Super Sundaes company to his new Supatreats Australia company.

When promoting his new Supatreats company, Mr Tan told franchisees that no-one would be worse off if they moved over to his new company. He also promised that, if franchisees chose to stick to their existing franchise agreement, they would not be worse off either. However, it seems that some franchisees were singled out by Mr Tan in this offer to move across to his new company. It is unclear exactly how many franchisees signed up to Mr Tan's new deal, but what is clear is the utter devastation Mr Tan wrought on Wendy's franchisees in Australia.

As a sign of things to come, in December 2014 Supatreats failed to pay outstanding rental dues on their Wendy's headquarters in Adelaide. They did so deliberately. Repeated attempts by post, email and phone to Wendy's staff Jane Foo and Ming Lau, the CFO, failed to get any response at all. The landlord, Bam (209) Investments Pty Ltd, applied to the District Court at Adelaide to distrain the premises, forcing Wendy's Supa Sundaes to pay one month's rent in cash to avoid a lockout. However, despite unqualified assurances at a meeting from their Australia representative, Ms Jane Foo, Wendy's Supa Sundaes paid no further money to Bam.

Wendy's Supa Sundaes abandoned the premises just before Christmas 2014, leaving the property with a clean-up bill exceeding $50,000. When they did this, they broke a long-term lease. No effort was made to leave the office in a reasonable state. Wendy's merchandise, including the sign on the outside of the building, remained in place. They scurried off. It was run by Mr Stanley Tan, a global CEO, a man who owns iconic brands, who is incredibly wealthy and who is based in Singapore, and they just abandoned the premises. Most seriously, in my view, Wendy's head office employees—in excess of 25 people, many with mortgages and families to support—were told just days before Christmas in 2014 that they no longer had a job.

In early 2015, Bam undertook proceedings to wind up Wendy's Supa Sundaes through the Federal Court. This took several months and many thousands of dollars to materialise. Bam's solicitors filed an application to wind up Wendy's Supa Sundaes in the Federal Court in Adelaide on the morning of 30 June 2015. In total, the landlords are owed more than $550,000. Whether the landlords will ever see this money remains to be seen, because Wendy's Supa Sundaes went into voluntary administration on the 2 July 2015. Ferrier Hodgson have been appointed as administrators. They have left behind a trail of creditors exceeding $30 million, much of it affecting small family businesses. This appeared to be part of a calculated strategy to avoid the implications that would have come with liquidation rather than voluntary administration.

Tan's business is still trading profitably today and is apparently about to expand throughout Asia, leaving behind a wreckage of small family businesses around the country. There are also allegations that he has intentionally sought to avoid GST in many of his transactions, and also that he has engaged in tax transference—in other words, that he has not properly paid taxes due under Australian law.

So why did things go so wrong for this iconic brand? It has been alleged that, starting in March 2015, weekly royalty payments automatically deducted from franchisees' bank accounts stopped being paid into the accounts of Wendy's Supa Sundaes. Instead, they were paid into the coffers of Mr Tan's new company, Supatreats Australia. I am told there are questions around the legality of this change to the payment structure. The practical effect of this change was to deprive Wendy's Supa Sundaes of revenue and push it closer to the brink of insolvency.

Not only was Wendy's Supa Sundaes being starved of funds by Mr Tan; its own accounts were also being raided. Wendy's Supa Sundaes had a marketing fund. All franchisees would pay four per cent of their weekly gross turnover into it. The marketing fund was crucial for supporting marketing activities for the company— marketing activities that are crucial to driving business to the brand and for bringing customers to the counter. I am told this marketing fund was raided just months before Wendy's Supa Sundaes was placed into voluntary administration. And, as if starving Wendy's Supa Sundaes of funds while also draining its existing accounts at the same time was not bad enough, Mr Tan also had his sights set on other so-called cost-saving measures. It is worth mentioning that the amount of money in that fund was in the many hundreds of thousands of dollars. On one account, up to $2 million could have been in the marketing fund that was raided. That was not enough for Mr Tan.

Throughout the first half of 2015, Mr Tan and his senior executives allegedly failed to pay the entitlements owed to the employees who lost their jobs in December 2014 when Supatreats Australia abandoned their Adelaide headquarters. These are individuals that have mortgages, that have homes to support. Yet an incredibly wealthy man, Mr Tan, appears to have avoided paying the liabilities of the companies that he controls, to have avoided paying these people what they were due.

Reports last week in the Adelaide Advertiserof a dispute between On The Run convenience stores—a large, very successful family business in Adelaide—and Mr Tan's Global Food Retail Group indicate, via court documents, that the Singapore based company formed a so-called strategy to break a contract entered into in 2013 for On the Run to open Wendy's franchises at 50 of its sites by 2020. On The Run has claimed Mr Tan's company has breached Australian Consumer Law by behaving unconscionably. The allegation includes Mr Tan's company selling franchises and at the same time shifting the IP to another company. Surely that is unconscionable behaviour in its sheer sneakiness and audacity.

When you put all of this together, what does it add up to? Quite simply, it looks a lot like a phoenix scheme. This is an issue I have raised with directly with ASIC. I believe the evidence provided to ASIC supports this contention. The information I provided to ASIC, after extensive discussions with franchisees that have been devastated by the actions of Mr Tan, support the conclusion that, in my view, Mr Tan and his Australian based executives, including family members, deliberately established Supatreats Australia Holdings Pty Ltd as part of an elaborate phoenix scheme. There is strong evidence of deliberation, improper intention by Mr Tan and Australian directors to avoid legal duties of directors, lack of disclosure of destination of weekly royalty payments, avoidance of payment of retrenched employee entitlements, placing of family members in influential positions, and avoidance of liabilities and debts, including entitlements of retrenched employees, retail lease liabilities and liabilities stemming from breaking the lease for the commercial headquarters in Adelaide. Further, there is strong evidence of starving of Wendy's Supa Sundaes of revenue sources by redirection of royalty revenues from franchisees' bank accounts without prior authorisation. Instead of payments going to Wendy's Supa Sundaes, they were instead paid to the new entity, Supatreats Australia Holdings Pty Ltd. There is strong evidence of unexplained and possibly improper payments made from the Wendy's Supa Sundaes marketing fund in the amount of $1.3 million in the week before entering voluntary administration, and of transfer of assets of intellectual property to foreign ownership.

Documents I have obtained indicate that the royalty payments were withdrawn on 3 March 2015 and paid to Wendy's Supa Sundaes, as they were previously, but on 10 March 2015 the invoices generated for the payments showed the money went to another entity, with a different name and bank account details. This entity was Supatreats Australia Pty Ltd. I question the legality of that. There is no indication that neither Mr Tan nor any of his executives in Supatreats or Australian Retail Franchise Group Pty Ltd obtained proper legal authority to effect this change for this lucrative stream of revenue.

Further evidence of the alleged phoenix scheme can be found in the apparent emptying of the Wendy's Supa Sundaes' marketing fund bank account in the weeks prior to the company being placed into administration. The fund was a crucial account for supporting marketing activity, as I indicated, and it just hastened the demise of many of these small family businesses. The misuse of and emptying out of the marketing fund just prior to administration adds further weight to the claims of an alleged phoenix scheme operated by Mr Tan and his senior executives. The positioning of Mr Tan's close, trusted family members into positions of influence from the start I believe shows that Mr Tan improperly relied upon family ties and loyalties in a corporate context, which is one of the key indicators of an alleged phoenix scheme.

This has been an appalling breach of trust by Mr Tan and his companies. I believe that this man has operated like a corporate cannibal. I believe that this man has caused enormous damage to many family businesses around the country. He has left in his wake a trail of financial devastation of many battlers. Peter Coventry initially thought, along with so many other hopeful franchisees, that Stanley Tan, with his experience as Chief Executive of Global Yellow Pages, would do the right thing. In fact, the very opposite occurred. Just last week, Peter and his wife lost their battle to keep their home in Perth, which was repossessed. I have no doubt that, had Peter been treated fairly, decently and honestly by Mr Tan, his home could have been saved. Despite all that Peter has gone through, I pay tribute to him, because he is still advocating for fellow franchisees who are struggling and battling at this great injustice.

I call on Mr Stanley Tan to come back to Australia, to face his creditors, to look his victims in the eye and to be accountable for his actions. I hope that our regulators, ASIC, the ACCC and the ATO, can ensure the full weight of the law is applied against Mr Tan and the companies he has controlled for the chaos and mayhem he has caused to so many.

Senate adjourned at 21:52