The Australian Competition and Consumer Commission (ACCC) has taken action against a franchisor for allegedly breaching the Franchising Code of Conduct (The Code).

Pastacup’s current franchisor Morild Pty Ltd (Morild) and the company’s former director Stuart Bernstein has managed and been a director of two previous franchisors of the franchise system which became insolvent.

The ACCC states that Bernstein’s directorship and management of two previous Pastacup franchisor companies that became insolvent should have been disclosed by Morild to potential franchisees. The watchdog also alleges that Bernstein was knowingly concerned in Morild’s conduct.

“These proceedings are the first in which the ACCC has sought penalties for breaches of the Franchising Code,” said Dr Michael Schaper, deputy chair.

“The ACCC is pleased that the revised Code provides for the Court to impose penalties for serious breaches. We expect that the availability of such remedies will act as a significant deterrent to others.”

The mandatory Code requires a franchisor to provide prospective franchisees with a disclosure document that, amongst other things, discloses the relevant business experience of all its officers.

“Last year’s changes to the Code require increased disclosure prior to entering a franchise agreement. The ACCC has made it an enforcement priority to ensure small businesses receive the protections of industry codes of conduct, including the Code,” continued Schaper.

“People who decide to buy into a franchise system often put their savings on the line and, in doing so, should be able to make informed business decisions on the basis of full and accurate disclosure by the franchisor.”

The competition watchdog is seeking declarations, injunctions, penalties, findings of fact and costs.