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Business news, business advice and information for Australian SMEs | SmartCompany

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    Australian franchise Pie Face is embroiled in a legal battle with a former franchisee, who is alleging the pie chain was misleading and deceptive when communicating the expected returns for the franchise stores.

    Former franchisee Prit Dutta launched court action in February this year claiming the earnings information provided by Pie Face prior to his purchase of two stores was “not based on reasonable grounds and was incomplete”.

    Dutta told SmartCompany he’s seeking $800,000 in damages.

    Dutta, who once owned two Pie Face stores in central Brisbane, says he’s not the only one to have been allegedly misled by Pie Face.

    “Basically in short, six out of seven Brisbane CBD store franchisees have faced financial losses or store shut down. The Albert Mall store has seen it twice,” he says.

    “The story is the same in Sydney and Melbourne. Too many stores are located too close to each other and are sold at a premium price leaving no room for the franchisee to survive.”

    Dutta says the stores are all located within a five minute walk from one another.

    “It’s part of the problem… we’re all suffering and they’ve left no margin for success,” he says.

    Dutta says he purchased the two Brisbane stores he used to own in a short amount of time “having been promised a certain profit”, but within a year he’d made substantial losses and got out of the business.

    “They gave me an Excel spreadsheet showing everyone was making a profit of between 11% and 25% and they projected everyone would make this in profit, regardless of differences in rent costs,” he says.

    “I entered a settlement with Pie Face for one of the stores for $200,000, I had no choice. But I’m still stuck with losses, so I’m pursuing the matter in court for my other store.”

    SmartCompany contacted Pie Face, but the franchise had no comment.

    In the Statement of Claim, Dutta alleges the earnings information failed to contain information regarding the facts and assumptions on which the projection was based, the period for which the projection was relevant and whether the projection included depreciation, salary for Dutta and the cost of servicing loans.

    It is also alleged the earnings information did not include assumptions about interest and tax.

    Dutta is alleging Pie Face engaged in misleading and deceptive conduct by telling the store it would “easily get $25,000 in sales and will make a ‘killing’”.

    Pie Face also allegedly told Dutta the franchise store would make an operating profit of more than $100,000 in its first year of trade.

    Dutta says he was also told the store would be located on the corner of the George Street mall and would have outdoor seating.

    “I was promised outdoor seating and dining, but I never got it. Initially they also told me the wrong location. The real location was two blocks away from the mall. I told them I didn’t think I’d make any money there, but they said not to worry and I believed them,” he says.

    Dutta says there is a group of Pie Face franchisees who are preparing to launch a class action against the franchise.

    “They’re ready to go, they’re just working out which lawyer to go with and how much it will cost since many nearly went bankrupt,” he says.

    This isn’t the first time allegations such as these have emerged against Pie Face. The Australian Financial Review reported last year around 50 Pie Face franchises were up for sale, but Pie Face founder Wayne Homschek denied these reports to SmartCompany.

    “We have some of the best wholesale margin/pricing that exists in the country, if not the best,” he said at the time.

    With regard to reports which emerged last year three franchisees would be suing the company, Homschek also said this had been taken out of proportion.

    “You will note that they only have one franchisee now threatening legal action…and they have never filed a claim notwithstanding all the noise that was made in January [2013] that they were about to.

    “It’s a joke really but it’s a pity as it is harming our business, which is going very well other than for this episode.”

    Another former Pie Face franchisee Tom Bulmer told SmartCompany he has also faced losses of about $200,000 and he has made a complaint to the Australian Competition and Consumer Commission.

    “Everyone in Brisbane seems to have failed or are on the chopping block…To get out, we ‘sold’ the store back and if our store sells to another, we can get our money back. The terms of our agreement cannot be disclosed,” Bulmer says.

    “Unlike most small business, we had no problem with revenue. The customers stormed in, but soon thereafter the franchisor opened many stores including one a block away from us.”

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    Coles has come under fire over a 2013 social media campaign in which it misled the public over the price of its milk and has agreed to a court enforceable undertaking.

    The Australian Competition and Consumer Commission investigated a video which Coles ran across YouTube, Facebook and Twitter from February 7 to May 5 last year.

    The promotion, ‘Our Coles Brand Milk Story’, was a cartoon concerning the price of Coles’ milk. 

    It was released amid public debate about the impact of $1 milk on the Australian dairy farmers who supplied milk to the supermarket giant.

    The ACCC received complaints from dairy farmer organisations about messages in the cartoon relating to the impact of a January 2011 price reduction on Coles milk on the average price paid for milk to dairy farmers.

    ACCC Chairman Rod Sims said the video represented that the farm-gate milk price increased from 86 cents per two litre bottle of Coles-brand milk in 2010-11, to around 90 cents in 2011-2012.

    However, Sims said this was “an estimate” and that “final industry figures showed the 2011-12 farmgate milk price actually decreased to 84 cents”.

    The ACCC reports that Coles based the 90 cent figure on an August 2012 report containing an early estimate of the 2011-12 farmgate milk price. It had the video script reviewed by the same industry expert that prepared the report, so at the time it published the material Coles was aware, or should have been aware, of other reports that predicted that final industry figures would show a decrease in the farmgate milk price to 84 cents.

    Coles admitted these representations would be likely to be misleading and contravene Consumer Law.

    The retailer has worked with the ACCC to resolve the matter and will publish corrective advertisements on the same online platforms.

    “The ACCC is concerned to ensure that companies are applying the same degree of Australian Consumer Law compliance to representations made in social media versus other forms of advertising,” Sims said.

    Other misleading elements to the video included that it was a “fact” that on average Coles’ margin on Coles-brand two-litre milk decreased from 55 cents in 2010-11 to 10 cents in 2011-12. It represented that processors received around $1 per two-litres of Coles-brand milk in 2010-11 and 2011-12.  However these figures were unsubstantiated estimates.

    The ACCC said the ad implied that the Coles’ price cut resulted in increased consumption of milk, and subsequently increased Australian dairy industry production. However the ACCC said the implied connection between lower retail milk prices and increased production of milk was only an opinion.

    “Businesses should also be aware that even where a representation might seek to inform the public about a matter that is the subject of political debate, if it goes further and encourages or promotes the sale of a product or service, it must be compliant with the Australian Consumer Law,” Sims said.

    The court enforceable undertaking requires Coles not to make misleading or deceptive representations regarding the price of milk for three years, and it is required to review its Australian Consumer Law compliance program.

    Coles said in a statement to SmartCompany that it "believes the key message in the video around funding of the retail price cut was correct, but we accept that some of the supporting information was based on estimates which were subsequently updated and therefore could not be substantiated".

    It said the video was made quickly and, as acknowledged by the ACCC, in the face of intense public debate about $1 milk.

    "We used estimated figures, checked with experts, in good faith but with hindsight should have cross checked with other estimated figures before publication. There were many inaccuracies in the misleading allegations made against Coles by lobby groups, including in their own video posted on Youtube which have not been subjected to an investigation," Coles said.  

    It said that the video was viewed by less than 9000 people.

    "Things have moved on including farmgate prices and the contracts Coles has with dairy suppliers. We have announced new long-term contracts with Australian dairy farmer co-ops Murray Goulburn and Norco which will secure the long-term future of thousands of dairy farmers while also retaining affordable fresh Australian milk for customers," Coles said.

    In 2013 Coles was investigated by the ACCC for its “freshly baked in-store” bread campaign.

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    The number of misconduct claims made against Australian liquidators has fallen, a report published yesterday by the corporate watchdog has revealed.

    The Australian Securities and Investments Commission’s annual report into the supervision of registered liquidators found reports of alleged misconduct about registered liquidators has dropped from 539 in 2011 to 446 in 2013, showing a positive downward trend.

    The ASIC report found 61% of reports of alleged misconduct against registered liquidators resulted in educative outcomes for those making the report.

    ASIC completed more than 250 reviews covering practitioner independence, competence and remuneration. This is up from close to 200 reviews in 2012.

    More than 70% of all independence declarations reviewed by the watchdog in 2013 were adequate, compared to less than 50% in 2012.

    ASIC commissioner John Price said the regulator will take strong action against liquidators who neglect their responsibilities and obligations.

    “Liquidators who did not adhere to their obligations have been removed from the industry,” he said.

    This follows formal investigations or enforcement action against 19 registered liquidators including the registration cancellation of Mark Levi and Avitus Fernandez.

    ASIC accepted an enforceable undertaking from Ian Struthers to cancel his registration for a minimum of three years and following an application by the watchdog, the Federal Court prohibited Andrew Dunner from registering as a liquidator for five years.

    JP Downey and Co principal Jim Downey told SmartCompany it was good to hear the number of misconduct claims had fallen but the figures could still improve further.

    “It doesn't surprise me, I think they've weeded out a few people from the insolvency field that would have attracted more statistics than the rest of us,” he says.

    Downey says ASIC’s emphasis on an educative approach mirrors the strategy of the Australian Financial Security Authority which also regulates the sector.

    “AFSA has had this educative approach for a number of years and it has worked very well,” he says.

    “It's a case of educating the public in a lot of cases, there's a lot of shooting of the messenger that happens in this sort of game.”

    Downey says liquidators regularly have to tackle misconceptions of what their role is in a business collapse.

    He says bodies like the Australian Restructuring Insolvency and Turnaround Association field a lot of calls and anecdotally in a large percentage of the calls which involve a complaint about the conduct of a liquidator do not in the end involve fault on the part of the liquidator, just a lack of understanding of the liquidator’s role.

    “The ongoing development of the code of professional practice continues to tighten up the world of an insolvency practitioner to make us more accountable,” Downey says.

    “That is probably contributing to there being less misunderstanding with clients.”

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    EnergyAustralia is the latest energy business to come under scrutiny for unlawful door-to-door sales tactics, with the company copping a $1.2 million penalty for making false and misleading representations.

    The Federal Court has also fined three of its associated marketing companies a total of $290,000.

    EnergyAustralia’s sales representatives were found to have engaged in misleading and deceptive conduct while calling on consumers in their homes to negotiate agreements for the supply of retail electricity by the company.

    The sales representatives were found to have breached numerous Unsolicited Consumer Agreement provisions under Australian Consumer Law.

    The marketing companies involved were Multiple Stories (trading as Aegis Direct), Australian Sales and Promotions and Sales Marketing and Real Technologies.

    Multiple Stories was ordered to pay $200,000, Australian Sales and Promotions was hit with a $50,000 penalty and SMART was fined $40,000.

    Legal breaches in relation to door-to-door sales are rife in the energy industry, and last year AGL ended up in court twice for various breaches.

    AGL Sale and AGL South Australia were fined a combined $1.555 million in May last year for the use of illegal selling practices, including making false representations to consumers.

    In October last year the Australian Competition and Consumer Commission commenced legal action again, when a salesperson acting on behalf of the company breached a ‘do not knock’ sign.

    In this case the court found EnergyAustralia representatives had lied and said a there was a mandated electricity rate of tariff consumers were required to be changed and that the consumer’s current retailer were charging them higher than the mandated tariff.

    The door-knockers also told consumers EnergyAustralia’s rate had approval or sponsorship from the government and that they were ensuring the consumer was being charged the correct tariff for a government initiative.

    Consumers were also told by EnergyAustralia salespeople they would become eligible for additional government entitlements which would reduce their electricity bills if the consumer signed up with EnergyAustralia.

    Under ACL, door-to-door salespeople are obliged to advice consumers as to their purpose, tell the consumer they must leave if asked to, leave a premise immediately if there is a ‘do not knock’ sign and provide information in relation to their identity.

    TressCox Lawyers partner Alistair Little previously told SmartCompany sales people can only call on consumers between 9am and 6pm Monday to Friday and 9am to 5pm on Saturdays and other obligations include not returning to a house for at least 30 days after knocking and informing customers of a 10 day cooling off period.

    Little says to ensure a marketing company is compliant with the law, there needs to be a strict training program in place.

    “You can have an arrangement with the company which includes penalty provisions in case they cause you losses or damages in the event consumer laws are broken,” he says.

    “If such an arrangement is in place then the contract can be terminated, and payment won’t be made should breaches occur.”

    EnergyAustralia has also been ordered to publish correct notices on its website and in the newspaper and maintain compliance programs for sales staff.

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    SensaSlim Australia has been found guilty of misleading and deceptive conduct by failing to disclose conman Peter Foster’s involvement in the business in its franchise disclosure document.

    Foster was found to be the “puppeteer” of the scheme and SensaSlim’s failure to disclose his involvement was deliberate.

    “The evidence presents a convincing picture of Mr Foster as the puppeteer who pulled all the strings [in SensaSlim],” Justice Yates said in his judgment.

    “Mr Foster controlled and directed, in an executive capacity, the way in which the SensaSlim business was carried on.”

    The Federal Court also found the business made false and misleading representations about the role of SensaSlim officers Peter O’Brien and Michael Boyle, the company’s ‘worldwide clinical trial’ and the earning potential of the franchises.

    Justice Yates found the clinical study was a “fabrication, intended to lead prospective franchisees into false belief that the efficacy of the SensaSlim product”.

    Foster was found to have gone to “great lengths” to conceal his involvement in the scheme.

    “The disclosure of Mr Foster as an officer of SensaSlim would have been particularly important to any potential franchisee, given the court orders which prevented Mr Foster from being knowingly concerned in the promotion or conduct of any business relating to weight loss, cosmetic or health industry products or services,” Australian Competition and Consumer Commission deputy chair Michael Schaper says.

    “Misleading representations about important aspects of a business opportunity such as the efficacy of the products and earning potential can cause significant harm to both small business investors and consumers.”

    Foster was sentenced in October to three years’ jail for contempt of court after defying court orders which prevented him from being involved in the weight loss industry.

    He is currently on-the-run and Interpol have issued a red notice calling for his arrest. Earlier this year it was reported Foster was hiding out in Fiji, but his precise location was unknown.

    Foster is said to have attempted to conceal his participation in the business by pretending to be Peter O’Brien. O’Brien was found to be no more than a front man in the scheme for Foster.

    Foster would pretend to be O’Brien in phone conversations with employees, as he was aware no one would want to be involved in the company if they knew of his involvement.

    Hall and Wilcox partner Ben Hamilton told SmartCompany businesses have an obligation to disclose any information which could be misleading to consumers, including businesses.

    “The lack of disclosure was deemed to be quite intentional,” he says.

    “In trade or commerce businesses just can’t engage in misleading or deceptive conduct, this is a broad principle. As for the Franchising Code of Conduct, any franchise is also governed by this code and there are a number of specific obligations regarding the disclosure of information under this code.”

    Hamilton says a useful starting point for businesses is to put themselves in the shoes of the consumer.

    “In all the circumstances it’s about the possibility the consumer could be misled by the conduct. The answer can’t always be straightforward, but that’s the principle.”

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    A Melbourne-based accountant has been sentenced to three years in prison for fraud after dodging almost $8 million in tax in 2005.

    Stephen Lynne Wharton has been found guilty by the Supreme Court of Western Australia of filing three false tax returns to the Australian Tax Office in 2005, while he was in prison for other fraud-related offences.

    The fraud was uncovered by the Australian Crime Commission during an investigation of tax schemes used by wealthy businessman and entertainment figures, according to The Age.

    The incorrect tax returns understated income earnt by Wharton’s trust accounts between 2002 and 2004.

    The investigation by the ACC was part of Operation Haycastle, which saw tax schemer Gregory Dunn sentenced in February to seven years in prison.

    Wharton is said to have operated as the middle man in the scheme, concealing money on behalf of Dunn in different trust accounts. Dunn then paid Wharton an 8% commission in return.

    Dunn had passed Wharton more than $12 million from two of his clients in the 2002 tax year.

    Warfield and Associates chief executive Brett Warfield told SmartCompany creatingfraudulent tax returns is a reasonably common tax scheme.

    “This has happened numerous times before where tax accountants have submitted false returns without the knowledge of their clients and then gained the profits, although this one seems to have occurred with the knowledge of the clients,” he says.

    “There are two ways false returns can work, either misrepresenting the income of a trust or it would overstate the expenses. Either way, you don’t pay as much to the ATO.”

    Warfield says these schemes are usually created out of greed.

    “The majority of these schemes I’ve seen have been conducted by individuals, but the biggest schemes can’t be done on an individual basis, so always require collusion,” he says.

    “This is a guy who has been in trouble, gone to jail and continued to be involved in schemes while in jail. He’s certainly not someone who has learnt his lessons”.

    In July 2004 Wharton was jailed for five years, with a conditional release after 18 months, for attempting tax fraud of $26 million in conjunction with Perth-based accountants Walter Tieleman and Sean Pearce.

    The men had promoted a tax minimisation scheme in 1998 which offered large tax deductions to miners with high incomes.

    At the time Judge John McKechnie described Wharton as “a man of straw” and a “financial rogue”.

    Warfield says the ATO doesn’t generally “go digging” into the activities of a specific accountant, unless it receives a tip off or discover inaccuracies as part of a broader investigation.

    “In order to commence a large scale investigation they tend to need to uncover a goldmine of information,” he says.

    “The ATO rely on the honesty and integrity of both lawyers and accountants, and when this is breached it can have a significant impact on the country’s financial system.”

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    The federal government is considering privatising the Australian Securities and Investments Commission corporate register, providing a much needed cash injection for the government.

    The Australianreported this morning the corporate register could be sold as part of a $1 billion plan to bolster the government’s reserves. 

    The speculation comes after ASIC chairman Greg Medcraft made comments to the economics references committee in February that the corporate register was “frankly, a technology business”.

    “It is not really a regulatory business,” Medcraft says. “That business has huge opportunities in terms of economies of scale. The Siebel system we have has, currently, six million names on it.”

    Medcraft says there could be “huge benefits” in separating the registry business and “merging it with other government registries to leverage the economies of scale from the Siebel management system”.

    SmartCompany contacted ASIC for comment, but the regulator said it wasn’t commenting further. SmartCompany also contacted Assistant Treasurer Mathias Cormann, but received no response prior to publication.

    A spokesperson for the Attorney-General’s department told SmartCompany ASIC’s corporate register “is a matter for ASIC”.

    According to The Australian, the ASIC registry generates more than $625 million in revenue and has annual costs of around $140 million.

    Medcraft says the move would also have benefits from a consumer perspective.

    “You end up with a one-stop shop for financial services and even other registry thing you go to. If you want to update, you want to go to one place et cetera… I think the registry is one that probably would be better moved out, aggregated with other registries to provide a one-stop shop for Australians,” he says.

    “And you have to think about the massive opportunity for extracting revenue from the metadata that actually comes from that.”

    The Coalition has already announced its plans to privatise Medibank Private through an Initial Public Offering, with the health insurance business expected to be worth around $4 billion.

    The privatisation talks come as Federal Treasurer Joe Hockey has been preparing Australian’s for a tough May budget.

    Hockey has flagged the possibility of increasing the pension age and told ABC TV his generation may have to work for an extra three years.

    “We need to redesign our systems to manage that fact,” he says.

    In March the government also claimed it had inherited a spending blow-out in the final year of its four-year budget, with the Labor government allegedly pushing huge increases in spending on foreign aid, defence and health into the fifth year of its budget last year.

    Hockey said in Parliament Labor had concealed a “massive tsunami” of planned spending.

    Speaking in Washington last week the Treasurer also said with the current budget deficit and below trend growth, there could be budget deficits for the next decade.

    “We are now grappling with growth stubbornly below trend as our economy rapidly transitions from the end of the resources investment boom, with rising unemployment and a deteriorating budget position,” he says.

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    Bibby Financial Services has been ordered to pay $1.4 million in compensation to its former sales director Ashley Sharma by the New South Wales Court of Appeal.

    The court dismissed Bibby’s appeal against an earlier decision awarding Sharma the compensation of his $1.4 million bonus plus six months’ salary.

    Sharma’s employment contract was terminated after he was accused of sexual harassment by Bibby’s NSW sales manager.

    The NSW sales manager was recruited from the UK for the role but lasted less than three months and on his return to England wrote to the head of human resources at Bibby’s parent company, the Bibby Line Group, saying the reason for his departure was the alleged sexual harassment.

    Bibby Line Group’s head of human resources came to Australia and started an investigation into the claim, but before Sharma was made aware of the allegations, or given an opportunity to be interviewed and respond, he was forced to either resign or have his employment terminated. 

    Sharma was then sent a deed of release with an offer of notice and a pro rata amount of a “special bonus” valued up to $1.4 million, which was payable shortly after the time of the purported termination of his employment. 

    Sharma rejected this offer and Bibby then terminated his employment for serious misconduct and did not pay Sharma notice or the special bonus.

    The court held that at the time Bibby decided to terminate Sharma’s employment it did so in full knowledge of the allegations of serious misconduct yet decided not to rely on those matters or to assert Sharma engaged in serious misconduct until after he rejected Bibby’s offer.

    The court also found Bibby had not proved any serious misconduct by Sharma that would warrant dismissal under the terms of his employment contract.

    People & Culture Strategies represented Sharma in the case and managing principal of the law firm, Joydeep Hor, told SmartCompany Sharma had to put his “life on hold” for several years as a result of the case.

    “Provisions in contracts for executives are not there for fun but are there because parties are expected to honour them,” he says.

    “The company was obliged contractually to follow a process in the event there was any suggestion of the misconduct [Sharma] had engaged in.”

    Hor says the outcome of the case turned on the negotiations and investigation undertaken.

    “When conducting investigations into misconduct employers need to be very careful about not just the substantive decisions they make but every step in that process,” he says.

    “Employers have to conduct investigations in a diligent way. There is a reason employers should consider outsourcing investigations of misconduct.” 

    Bibby declined to comment.

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    Small businesses in New South Wales are set to save an average of $60 on their annual electricity bills, after a decision by the Australian Energy Regulator to force electricity distributors in NSW and the Australian Capital Territory to pass on savings to their customers.

    It’s good news for small businesses which have been forced to cover escalating electricity prices over recent years. Small business owners in the ACT are expected to save an annual average of $29 on their electricity bills, while households in NSW and the ACT will save an average of $38 and $19, respectively.

    The AER announced today it has issued placeholder determinations that will bring about lower electricity prices for the four electricity distributors that operate in NSW and the ACT: ActewAGL, Ausgrid, Endeavor Energy and Essential Energy.

    The regulator, which is an arm of the Australian Competition and Consumer Commission, said the determinations, which will apply from 1 July 2014 to 30 June 2015, mean the four companies are required to pass on cost savings, generated from lower demand for electricity over the past five years, to end consumers.

    A full determination of the revenue structure for the operators will be made in April 2015.

    Each of the four energy companies had proposed changes for their 2014-2015 tariffs, ranging from a $2 cut for Endeavor Energy customers to a $37 increase for ActewAGL customers.

    However, AER chairman Andrew Reeves said “because the demand for electricity has been less than expected, the New South Wales businesses over-estimated capital expenditure and subsequently underspent between 2009 and 2014”.

    Executive director of the Council of Small Business Australia Peter Strong told SmartCompany while $60 does not seem like a large amount of money, the ruling is good news for small business as it means that electricity prices are not on the rise.

    “Small business runs on confidence and this news is good for business confidence,” he said.

    Strong said that electricity represents a relatively small cost to businesses, compared to costs like rent and wages, “but it is significant enough that business owners are going out of their way to reduce these costs”.

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    If you’ve ever wondered just why KitchenAid mixers are so expensive the answer may be in the acknowledgment today by Peter McInnes of concerns it engaged in resale price maintenance. 

    Peter McInnes is the exclusive distributor in Australia of the cult kitchen products and supplies KitchenAid mixers to a number of retailers throughout Australia, including specialty stores and major department stores.

    The distributor has provided court enforceable undertakings to the Australian Competition and Consumer Commission after the claims of resale price maintenance were raised.

    The watchdog claims Peter McInnes engaged in resale price maintenance on four occasions between November 2011 and June 2013 by trying to induce retailers to sell KitchenAid mixers at the recommended retail price.

    The ACCC claims Peter McInnes used tactics including expressing criticism of two retailers’ promotions where those promotions advertised only the discounted price of the mixers and advising a retailer that the value of Peter McInnes’ contribution to retailers’ “gift with purchase” promotions would be lowered due to retailers not pricing at the RRP when conducting such promotions.

    ACCC commissioner Sarah Court said the competitive process relies upon retailers being free to discount their goods and compete with each other on price.

    “If a supplier tries to force or induce a retailer to stick to a particular price, it concerns the ACCC as consumers benefit from being able to shop around for the best deal,” she said in a statement.

    Peter McInnes provided the ACCC with a court enforceable undertaking that it will refrain from engaging in resale price maintenance for a period of two years, write to all of its KitchenAid stand mixer customers informing them that they are free to set their own minimum prices for products supplied to them by Peter McInnes, issue directions to its employees that they should refrain from expressing to those customers any hostility or criticism about the customers discounting below the recommended retail price and implement and maintain a compliance program.

    Melissa Monks, special counsel at law firm King & Wood Mallesons, told SmartCompany resale price maintenance is easy to detect and therefore a relatively easy win for the ACCC.

    “Where many businesses (sometimes unwittingly) get caught is that they are keen to maintain their brand or product as a premium brand rather than see this diluted with reduced pricing and therefore attempt to stop discounting,” she says.

    “This is likely to have been the motivation of Peter McInnes given the prestige associated with the KitchenAid brand.”

    Monks says the resale price maintenance provisions make this conduct illegal with significant penalties for a breach. 

    “While it is acceptable to recommend prices for resale it needs to be a genuine recommendation without inducement or pressure to sell at that price to ensure a business does not fall foul of these provisions,” she says.

    “Peter McInnes went one step further than simply recommending a price but engaged in conduct to attempt to get suppliers to in fact sell at that price and this is what got them into trouble.”

    Monks says Peter McInnes has been “fortunate” to get away with only an undertaking in comparison to Jurlique which had to pay a $3.4 million penalty and Mitsubishi Electric which had to pay $2.2 million.

    A spokesperson for Peter McInnes said the importer had voluntarily taken steps to ensure ongoing compliance with the law. 

    "The net of the investigation is the ACCC acknowledged 'no universal conduct' by Peter McInnes that constituted resale price maintenance," the spokesperson said.

    "No fines and penalties were imposed on Peter McInnes or any employee of the company." 



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    A former BRW rich lister and tech entrepreneur has appeared in the Melbourne Magistrates’ Court having allegedly orchestrated a multimillion dollar fraud against the National Australia Bank.

    Peter Mavridis, formerly the chief executive of S Central Group, allegedly defrauded NAB of $3 million through false invoices in order to obtain credit for companies within the group.

    Following an investigation by the Australian Securities and Investments Commission, Mavridis has been charged with 24 counts of obtaining financial advantage by deception, 10 charges of false accounting and one charge of dishonest use of position as a director.

    The offences are alleged to have taken place between January and October 2009.

    S Central ceased trading in October in 2009 and its assets were sold to rival IT company Brennan. By February 2010 liquidators had been appointed to the company.

    Prior to S Central’s collapse, company employees who were owed unpaid entitlements set up a website to criticise Mavridis.

    In 2007 Mavridis had been on the BRW Rich 200 list, valued at $74 million.

    ASIC now alleges Mavridis, either directly or through his financial controller, submitted duplicated and falsely inflated invoices to NAB, as well as falsifying other documents required by NAB to support the fake invoices.

    Mavridis is also said to have used his position as a director to allegedly use $20,000, held on trust for NAB, to clear a personal credit card debt.  If found guilty, Mavridis could face 10 years in prison.

    Warfield and Associates chief executive Brett Warfield told SmartCompany false invoicing is one of the most common types of fraud.

    “False invoicing is a very common type of fraud, especially when it comes to large amounts of money. I’ve seen cases involving hundreds of thousands and millions of dollars,” he says.

    “False invoicing would be in the top three types of major frauds.”

    Warfield says the fraud tends to be orchestrated in two ways, either by an individual in a position of authority or through collusion with a third party outside of the company.

    “If it’s an individual they will create an invoice for a service for which they have the responsibility, send the invoice to accounts and then accounts will approve the payment and it will be processed, so long as the invoice is within that person’s responsibilities,” he says.

    “The higher you are in the organisation, the more money you can typically sign off. The second way is for the individual to collude with an external party. For example they could approach a supplier, become friends with them, and then propose the supplier inflate an invoice and then they split the difference.”

    Warfield says false invoices are often difficult to detect until a business collapses.

    “When a false invoice aims to dupe the financing company, the person often exaggerates their assets and they will provide the bank with false invoices supporting the purchase of these assets,” he says.

    “If the company collapses corporate recovery liquidators will come in and when they go to reconstruct the books, they tend to find out what was behind the collapse and will pick up on the false invoices.”

    According to Mavridis’s LinkedIn account he is currently chief executive of Telecom NBN. SmartCompany contacted Telecom NBN, but received no response prior to publication.

    The case has been adjourned until June 10, 2014.

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    Tiny Tots will refund consumers up to $50,000 after it was found the children’s photography business breached Australian Consumer Law.

    Tiny Tots has given the Australian Competition and Consumer Commission a court-enforceable undertaking to refund consumers and shore-up business practices after it entered into 1400 unsolicited agreements.

    The ACCC says consumers were not informed about how to terminate the agreement and were not provided with the company’s contact details. The ACCC also argues consumers were misled because they were told they did not have any cooling off rights when they did. 

    ACCC Northern Territory regional director Derek Farrell said in a statement he was alarmed by Tiny Tot’s impact on customers in rural and remote locations.

    “It is particularly concerning to the ACCC that a significant number of Tiny Tot’s customers were from remote indigenous communities,” he said. “The right to cancel unsolicited contracts during a cooling off period is a fundamental protection for consumers under the Australian Consumer Law.”

    Farrell went on to say misleading customers was unacceptable behaviour.

    “Companies who engage in unsolicited selling in remote areas should be crystal clear that the law applies to them and will be enforced if it is breached,” he said.

    Sally Scott, partner at Hall & Wilcox, told SmartCompany under Australian Consumer Law consumers who enter into unsolicited consumer agreements have a right to terminate the contract within a cooling off period.

    “The cooling off period ranges from 10 days to six months depending on a number of factors, including how the agreement was entered into,” she said. “If a consumer terminates within the cooling off period, the consumer is entitled to a full refund and must return any goods received.”

    Scott says any attempt by a seller to mislead consumers about their right to terminate during a cooling off period would expose the seller to certain penalties.

    “Any provision of an unsolicited consumer agreement that seeks to avoid the cooling off period termination right would be void and would expose the seller to action by the ACCC for contravention of the Australian Consumer Law.”   

    As part of the court-enforceable undertaking, Tiny Tots has agreed to offer refunds to customers who live in remote communities who were provided with photographic services and are currently making payments under the agreement.

    The business has also agreed to establish a compliance program to minimise the company’s risk of future breaches. The program will include cross-cultural training for staff who are providing services to Indigenous customers.  

    Tony Tots was contacted for comment but did not respond prior to publication.

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    Flight Centre has appealed an $11 million dollar fine imposed by the Federal Court last month for anti-competitive behaviour.

    Federal Court judge John Logan handed down the multimillion-dollar penalty following court proceedings last year, where it was found the travel agency had entered into price-fixing arrangements with three airlines.

    The proceedings were brought forward by the Australian Competition and Consumer Commission, which argued Flight Centre had threatened to stop selling flights for Singapore Airlines, Malaysia Airlines and Emirates in order to offer the lowest fare.

    The court found the travel agency had broken the law on five occasions between 2005 and 2006. When imposing the fine, Justice Logan said there was “no doubt” commercial profit was the driver behind Flight Centre’s conduct.

    Flight Centre lodged an appeal last week and in a statement to the Australian Securities Exchange, the travel agency said the Federal Court’s judgment contained “errors and inappropriate extensions of the law”.

    “The penalties are manifestly excessive given the circumstances and the lesser penalties handed down in other cases, where the law was knowingly breached and there was a clear impact on the market,” the statement said.

    Howard Rapke, partner at Holding Redlich, told SmartCompany the consumer watchdog takes anti-competitive behaviour very seriously.

    “The ACCC sees it as very serious and as an important part of their statutory role,” he said. “Clearly the ACCC as a regulator wants to be seen to be deterring what it sees as anti-competitive conduct.”

    Rapke said price-fixing carries large penalties because the fines are linked to the benefit the company in question has obtained.

    “I think it’s crucial for officers and directors of a company to be very well informed about what the consequences are of a breach of the competition laws,” he said.

    In the statement to the ASX, Flight Centre managing director Graham Turner said he looked forward to the appeal and believed it would be heard later this year.

    In the meantime, the travel agency said it would comply with the Federal Court’s decision and not repeat the conduct prohibited by the court.

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    The founder of failed brokerage firm Sonray Capital Markets has been jailed for six-and-a-half years for his role in the $46 million collapse of the company.

    The Victorian Supreme Court found Russell Johnson guilty on April 17 of a number of offenses, including false accounting, theft and deception and conspiracy to steal. Johnson had pleaded guilty to the charges in October 2013.

    Johnson’s brother-in-law and former chief executive of Sonray, Scott Murray, was jailed for five years in October 2011 after being found guilty of 10 charges brought by the Australian Securities and Investments Commission.

    Sonray Capital Markets was established in 2003 and collapsed in 2010 with debts of $46.7 million, resulting in 4000 clients’ accounts being frozen. The company provided advice on contracts for difference – stock market betting based on whether shares or other financial transactions will go up or down.

    Johnson was sentenced by Justice Cameron Macaulay, who said Johnson’s behaviour was a serious example of the crimes charged and was carried out with “a sophisticated degree of orchestration and planning”.

    However, Justice Macaulay found Johnson was motivated by a desire to keep his company going. “The path you took was the dishonest one but I accept that it was not motivated by personal greed,” he found.

    The charges against Johnson related to the withdrawal of funds from Sonray’s clients’ trading accounts from unfunded deposit entries between 2007 and 2010. The money was then used predominantly within the business or for personal use.

    Warfield and Associates chief executive Brett Warfield told SmartCompany Johnson’s sentence is consistent with other fraud cases involving high dollar amounts. “The higher the dollar values of the fraud, the longer the sentence,” said Warfield.

    Warfield said there is a danger for investors who place their money with sole traders, as these companies don’t have the traditional structure of a board of directors and the safeguards that come with that. “If the key man at the top goes rogue, there’s not a lot they can do,” he said.

    A situation where the directors of the company are related to each other is also a “warning flag”, said Warfield. “There is a potential conflict of interest and they may have less balanced judgement if they are related.”

    Johnson has been sentenced to serve a minimum of three-and-a-half years’ prison before he will be eligible for parole.

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    Complaints over a Target ad featuring celebrity fashion consultant and television presenter Gok Wan have been dismissed by the Advertising Standards Board.

    Target received a storm of criticism last year when Wan, host of How to Look Good Naked, referred to women’s breasts as “bangers” in a commercial for women’s underwear.

    More recently the advertising watchdog received a number of complaints regarding a new commercial featuring Wan, this time promoting Target’s “intimates” collection. In the ad, Wan calls breasts “assets” and says buying lingerie doesn’t need to break the bank.

    In a sample complaint published in the board’s case report, one person argues it is offensive to discuss a woman’s breasts – or any other part of their body – as an asset.

    “I was watching a program with my 14- and 12-year-old daughters who had never, and should not have ever, heard breasts described as assets,” the complaint reads. “A disgraceful advertisement.”

    In its defence, Target said the ad encouraged women to dress in correctly-sized underwear and feel good about themselves.

    “We respectfully disagree with the complaints,” Target’s statement to the advertising watchdog reads. “We consider the advertisement to be appropriate and in line with Target’s brand values.”

    The department store chain also hit back at complaints which focused on Wan’s sexuality.

    “Gok Wan was chosen as a brand ambassador for Target because of his personality and

    reputation, not his sexuality,” the company’s statement read. “He has a great capacity for making other people feel good about themselves too … Target makes no apology for using a gay man in its advertising and we do not believe that this should be grounds for upholding a complaint.”

    Michelle Gamble, chief executive of Marketing Angels, told SmartCompany it is good to see common sense prevailing in the Advertising Board’s decision.

    “What Gok did was refer to things already in our vernacular,” she said. “He didn’t use words that are swear words or derogatory.”

    Gamble said businesses should avoid words that are seen as demeaning in advertising, however in this instance Target was using slang words that many women themselves use.

    “I think Gok’s campaign was fantastic for Target,” she said. “He is a very approachable character that people can relate to.”

    Gamble says SMEs have an advantage over large companies like Target when it comes to advertising, because they can test marketing ideas more easily.

    “I think SMEs often are a lot closer to their customers,” she said. “So if you are looking at something that is a bit cheeky, perhaps have a small group of test customers you could float the idea with before putting it out into the market.”

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    The Australian Securities and Investments Commission has banned celebrity chef Justin North and his wife Georgina North from managing corporations following their involvement in the failure of three companies.

    ASIC announced today the Norths have been banned for two years and 18 months respectively, effective from April 4, 2014.

    The ASIC ban follows the appointment of liquidators to award-winning Sydney restaurant Becasse in June 2012 and to Etch Restaurant and North Food Catering in July 2012. 

    The businesses employed 150 staff at their peak but administrators Jim Sarantinos and John Melluish of Ferrier Hodgson found the Norths’ "rapid growth" led to a "number of underlying business issues".

    The regulator found the Norths failed to exercise their powers and discharge their director's duties with the requisite degree of care and diligence.

    ASIC found this failure resulted in “large deficiencies” owed to creditors totalling a combined sum of over $7 million for the three companies.

    ASIC Commissioner Greg Tanzer said in a statement, “ASIC's power to disqualify directors of failed companies is an important preventative measure used by ASIC to safeguard the public interest.”

    North was born in New Zealand and trained in New Zealand, Australia, France and the UK before returning to Australia in 1999.

    He worked under chef Liam Tomlin at Sydney's Banc Restaurant and moved through the ranks of the kitchen to the role of head chef before venturing out with his wife, who was the sommelier at Banc, to open Becasse.

    North has also released two cookbooks and is well known from his appearances on MasterChef.

    When Becasse initially went into administration North posted on Twitter: "Thank you everyone for your support, to confirm Georgia & I have put Becasse Group into voluntary administration with a view to restructure.

    "In the meantime it is business as usual. We will post more updates soon.

    "The support and messages have been overwhelming, sorry we haven't been able to respond to all, come by and eat with us soon."

    The restaurant closed shortly afterwards and North has now opened a new restaurant at Hotel Centennial in Woollahra.   

    Persons banned by ASIC have a right to appeal their banning to the Administrative Appeals Tribunal, and may lodge their appeal within 28 days.

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    Carlton & United Breweries has entered into a court enforceable undertaking with the Australian Competition and Consumer Commission, after the beer giant admitted its labelling of Byron Bay Pale Lager may have been misleading.

    The brewer has also copped $20,000 in infringement fines in relation to the case, which rested on ACCC concerns that CUB was misleading consumers by portraying itself as a small business.

    CUB has been supplying Byron Bay Pale Lager nationwide since 2013 through a license from the Byron Bay Brewing Company, which brews and sells the beer at its location in Byron Bay.

    The beer sold by CUB featured the name ‘Byron Bay Pale Lager’, an image of a lighthouse and a map of the Byron Bay area, as well as information about the town.

    However, CUB brews the beer in Warnervale, 95km north of Sydney and about 630km from Byron Bay. The ACCC was concerned the beer was presented as being brewed by a small brewer in Byron Bay.

    The ACCC said in a statement on Tuesday that CUB has agreed to stop distributing the products with the labels in question and, more generally, has agreed to not make false or misleading representations concerning the size of the brewery where its products are made or the place of origin of its products.

    The company is also required to publish corrective notices on its website and in trade publications, and provide a notice for retailers to display at their points of sale.

    A CUB spokesperson told SmartCompany the company has created a new label for the product, which is still available for sale. 

    "The labelling has been revised to better disclose the third party contracting relationship between the Byron Bay Brewing Company and CUB," said the spokesperson. "CUB treats its commitment to the law seriously and has worked with the ACCC over many months to address their concerns."

    The new label no longer features a map of the Byron Bay area or information about the town. In their place is a description of the beer and the words: "Bottled and brewed under contract in Warnervale NSW by Carlton & United Breweries ... for the Byron Bay Brewing Company". 

    “Many small brewers cater to consumers who prefer to support small, niche businesses,” said ACCC chairman Rod Sims. “When large companies portray themselves as small businesses, it undermines the unique selling point that such small businesses depend upon, and it misleads consumers.”

    Sims said the ACCC will write to other companies in the beer market, “putting them on notice of this matter in order to ensure that marketing and labelling in the beer market appropriately reflects where and by whom beer is brewed”.

    SmartCompany contacted the Byron Bay Brewing Company but did not receive responses before deadline.

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    Popular insurance and home loan provider Virgin Money has paid more than $30,000 in penalties after the Australian Securities and Investments Commission found it misled customers through online and television advertising.

    ASIC issued three infringement notices imposing a penalty of $10,200 each. The notices related to the promotion of Virgin Money’s “Quick & Easy” life insurance product, which was advertised on television until May 2013 and online up to May this year.

    The corporate regulator found while the advertisements claimed no health and lifestyle questions would be asked, the insurance application form contained specific health and lifestyle-related questions. Customers were queried about their smoking habits and weight and their responses used to calculate premiums and determine the coverage offered to them.

    ASIC deputy chairman Peter Kell said in a statement the misleading advertisements were particularly concerning because life insurance is such an important decision.

    “Purchasing life insurance is an important decision and consumers should be able to confidently rely on representations made to them in advertising,” he said.

    Melissa Monks, special counsel at law firm King & Wood Mallesons, told SmartCompany ASIC’s decision is sending a clear message to businesses.

    “This is a good reminder to ensure that the terms and conditions of the claims you make in a particular campaign are accurate because the fallouts can be quite significant,” she said. “These things come very easily to a regulator’s attention when they are so obviously wrong.”

    The payment of infringement notices is not an admission of a contravention of the Australian Securities and Investment Commission Act. However, Monks says infringement notices are a cheap and quick enforcement mechanism for the corporate regulator.

    “It is still not an ideal outcome [for the business] and many consumers see it as some sort of admission,” she said. “Increasingly regulators are using these and particularly ASIC. This is a good warning to the financial services industry that they really need to get their messaging right because the regulator is very willing to act.”

    Monks also points to the non-financial repercussions cases such as this one have on businesses.

    “The brand damage that flows from something like this is significant,” she said. “And the lack of confidence customers will have in the company going forward.”

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    A senior member of the Queensland government has called for a boycott of Ben & Jerry’s ice-cream products, saying the retailer has jeopardised jobs and tourism in the state through its “Reef Scoop Tour” publicity campaign.

    State Environment Minister Andrew Powell’s comments come at the same time as confirmation from the Australian Competition and Consumer Commission that it is considering whether statements made by Ben & Jerry’s during the campaign are in breach of Australian Consumer Law.

    The US ice-cream maker has sent a van up the east coast of Australia which is handing out free scoops of ice cream in a bid to raise awareness of what it says are serious risks to the Great Barrier Reef, including “intensive dredging, mega ports and shipping highways”. The campaign is being run in co-operation with conservation organisation WWF.

    The campaign is a response to approval by the Queensland and federal governments of the dumping of 3 million cubic metres of dredge spoil in the marine park and World Heritage area as part of the Abbot Point coal port expansion.

    The Guardian reports Powell is planning to write to Ben & Jerry’s parent company Unilever about the campaign.

    “Another company has signed up to the campaign of lies and deceit that’s been propagated by WWF,” said Powell. “The only people taking a scoop out of the reef are Ben & Jerry’s and Unilever.”

    The minister’s comments come at the same time as confirmation that the ACCC is looking into the campaign.

    Fairfax reports the ACCC has received multiple complaints about the company’s statements, including from another member of the Queensland Liberal Party, senator-elect Matthew Canavan, who said in a letter to ACCC chairman Rod Sims that the competition watchdog must consider whether the company has misled or deceived consumers.

    “I do not dispute Ben & Jerry’s right to campaign on the political issues of their choice, but they have a legal obligation in Australia not to engage in misleading and deceptive conduct while engaging in trade and commerce,” said Canavan.

    “Ben & Jerry’s state ‘the Reef is at serious risk from intensive dredging, mega ports and shipping highways’ [but] these statements are not true,” he said.

    An ACCC spokesperson told SmartCompany the commission will “consider matters raised with it but isn’t in a position to discuss the specific matters raised at this stage”.

    “As a general comment, we note that the Australian Consumer Law contains general prohibitions against businesses from making false, misleading or deceptive representations to consumers,” said the spokesperson. “In deciding what approach to take, the ACCC would access concerns raised against its Compliance and Enforcement Policy.”

    SmartCompany contacted Ben & Jerry’s Australia but did not receive a response by deadline.

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    The federal government likes to present itself as a big supporter of parental leave, with its generous paid parental leave scheme one of Tony Abbott’s flagship policies.

    While commentators argue about how generous paid parental leave should be, how much of a cost it is to business, and even if it’s a valid way to increase women’s participation in the workforce, they are overlooking some fundamentals.

    Two of the most important rights regarding parental leave are in danger of being undermined because many employers are not complying with their existing legal obligations.

    The first is the right of an employee on parental leave to return to their previous position, or if the position doesn’t exist, to return to an available position that is the closest in status and pay to their previous position.

    The second is the right of an employee on parental leave to be consulted about any decision made by their employer that will have a significant effect on their employment – including their status, their pay or the location of their work.

    These rights are guaranteed by the Fair Work Act and are fundamental to job security for people who take parental leave. 

    Crucial aspects of the employment – including its existence – cannot just be changed by an employer without a proper discussion.

    In addition, the knowledge that they will have a job to go back to after parental leave is arguably the most important form of security available to parents taking time out from the workforce.

    However, employers are finding ways to get around these important guarantees. 

    Discrimination against parents returning to the workforce is the most common form of discrimination we see in our practice, easily outnumbering other forms 5 to 1.

    We hear countless stories of employers telling their employees that there is no job for them to come back to and no other positions available either.

    This anecdotal evidence is backed up by data released by the Australian Human Rights Commission recently.

    As part of their national review on discrimination related to pregnancy, parental leave and return to work, the AHRC conducted a survey on the prevalence of such discrimination.

    The resulting data shows that one in two mothers experience discrimination in some form when they are pregnant, seeking or taking parental leave or when they return to work.

    One in five mothers were made redundant/restructured, were dismissed or did not have their contract renewed.

    The survey found that such discrimination has wide-ranging consequences, including negative impacts on finances, mental and physical health and career and job opportunities.

     Yet the majority of women do not make a formal complaint about the discrimination they experience.

    Given the existence of valuable return-to-work rights protected by law, how is this happening?

    Story continues on page 2. Please click below.

    Many employers are getting around these guarantees by having a discussion with their employees, but ensuring that those discussions have no hope of influencing any outcomes.

    Technically, they appear to be complying with the law, whilst in reality they render the discussion hollow and meaningless, as the decision has already been made.

    Although this approach might appear to comply with the law, in reality it falls far short.

    The courts have looked at this issue in a number of cases and come up with a number of principles about what constitutes “consultation”.

    The requirement to consult should never be treated as a mere formality – the party to be consulted must have a meaningful opportunity to express their views and point to problems. In the words of one judge, “consultation is no empty term.”

    Consultation is not an opportunity for decision-makers to allow those being consulted to make ineffective representations – rather, they must enable points of view to be put forward which may result in changes to a proposal or even its withdrawal.

    Consultation should be done at a formative stage of proposals, before the mind of the decision-maker has become fixed. 

    Employees on parental leave have a right to be meaningfully heard on any decisions that significantly affect their job, which includes the opportunity to influence the outcome of that decision.

    If an employer orchestrates a pre-determined outcome dressed up as “consultation”, this does not satisfy their legal requirements and employees are entitled to demand something better.

    If the federal government is truly committed to security for employees on parental leave, they should do more than score political points about being family-friendly but seek to strengthen these very important legal protections, and ensure employers understand their obligations to employees.

    Giri Sivaraman is principal and Alessandra Peldova-McClelland is a lawyer in the Sydney employment law practice at Maurice Blackburn. 

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