Green Acres fraud triggers Kiwi franchise review?

This is an interesting article by Nevil Gibson in The National Business Review: Franchisers face prospect of regulation.

Nevil Gibson starts of with:

The Green Acres franchising scam, in which dozens of new migrants from China and India were bilked of millions of dollars, has sparked a government clampdown on the sector.

Commerce Minister Dalziel [picture] is quoted as saying:

“I was actively involved in meeting with franchisees at the beginning of the year who had been caught up in what is an alleged fraud and still subject to investigation by the relevant authorities including the Franchise Association of New Zealand (FANZ).

As a bit of a reminder to viewers:

In May, the NBR reported the Green Acres Group – the country’s largest franchiser – had recovered from the $4 million fraud, which involved an individual selling a home ironing franchise to several hundred investors for more than $20,000 each.

The media reason given is Green Acres but the Discussion Paper cites a total of 3 reasons:

  1. information imbalance [assuming more of the same pre-sale disclosure information will help],
  2. cost of any remedy [keep litigation but make mediation mandatory], and
  3. reputation damage that interferes with the franchise industry’s ability to sell, sell, sell.

Curious how the wrong that seems to get the most attention is the negative publicity drag on the head office as opposed to the $4-million cash lost to the recent immigrants.

Time will tell if this proposed regulation turns out to another McLaw: the illusion of franchise investor protection. A cynical interpretation makes this spin designed to get past the next election.

  • One great suggestion is a requirement for every franchise system to join the FANZ and be held accountable to its Franchising Code of Practice [download pdf].
  • Mandatory legal advice would be a real step forward, too. [A Certificate of Independent Legal Advice from both spouses to make a franchise agreement enforceable.]

These standards would apply to all members of the FANZ community [lawyers, accountants, consultants, salespeople] and not just to the franchisors. Right?

It would be a shame to have salespeople or consultants not being responsible for their advice let alone the professionals [franchise lawyers and accountants] who have an existing statutory duty of care to provide prudent advice.

It would seem a shame to maintain the fraud incubator where a Blue Chip v2.0 can flourish [ie. defrocked professional uses franchising as a mask and liability shield that causes thousands of the most vulnerable to lose their homes].

The standard when evaluating public official actions is, if I recall correctly:

  • knew or
  • could have been reasonably been expected to know.
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