The competition watchdog has had its first major win enforcing a new franchising code of conduct, with the Federal Court today fining Pastacup franchisor Morild and co-founder Stuart Bernstein $150,000 for a failure to disclose he had been a director of two insolvent entities.
Franchisor Morild will pay a $100,000 penalty for the infraction, while Mr Bernstein was fined $50,000.
The case was the first time the Australian Competition and Consumer Commission sought penalties for a breach of the 2015 Franchising Code of Conduct.
The commission initiated the proceedings in September 2016.
Mr Bernstein co-founded Pastacup in 2008 with Norwegian co-founder Siri Solumsmoen, and the business has now expanded to have stores in 20 locations.
But the penalty came after Mr Bernstein and Morild failed to disclose he had served as a director of two previous Pastacup franchisors that had became insolvent.
Morild’s disclosure document was not in line with the franchising code, the commission said, because the undisclosed directorships were relevant business experience.
Mr Bernstein was fined for being knowingly concerned in that conduct.
He is no longer serving as a director of Morild.
Commission deputy chair Michael Schaper said the penalty was the first court-ordered fine under the new code.
“These significant penalties should send a strong message to other franchisors that they must meet their disclosure obligations,” he said.
“The franchising code requires franchisors to provide prospective franchisees with a disclosure document which contains important information about the franchise and the franchisor.
“Full and accurate disclosure by the franchisor is essential to enable prospective franchisees to make informed business decisions.”
Pastacup has been contacted for comment, but had not responded at the time of publication.
Business News understands Morild has consented to the penalties and will pay a share of court costs.
