ASIC ‘concludes’ Retail Food Group investigation but no enforcement action taken

Disgraced franchisor Retail Food Group (RFG) has escaped enforcement action over claims it “burned” franchisees with an exploitative business model, with the Australian Securities and Investments Commission (ASIC) confirming it has ended its investigation into the company.

The franchise chain, which owns the Michel’s, Gloria Jeans, Crust Pizza and Donut King brands, saw its share price spike on Tuesday morning after the company notified the market there would be “no enforcement action” arising from the corporate regulator’s probe.

“The company has been advised by ASIC that ASIC has concluded its investigation and has decided that it will not take any enforcement action following its investigation,” RFG said in a statement.

“No inference should be drawn from ASIC’s decision to conclude its investigation without taking enforcement action. ASIC may also recommence its investigation, or commence enforcement action, if circumstances change.”

The corporate regulator was investigating RFG over potential breaches to the Corporations Act referred by a parliamentary committee into the franchising sector in 2019.

A separate surge in RFG’s share price last year, which came prior to it announcing a $150 million recapitalisation, was also scrutinised.

The franchisor has been the subject of several regulatory investigations after a scathing parliamentary committee report into the franchise sector called for an investigation into claims Retail Food Group forcibly churned its franchisees.

In their report, federal legislators said ASIC should take a more proactive role to regulating franchisors, saying it had heard evidence corporate governmence across the sector was as bad as that exhibited in the financial services sector.

“The committee notes the ACCC, the ATO and ASIC are yet to conduct comprehensive, systemic and forensic investigations into the actions and operations of RFG and its current and former executives,” the committee’s report said.

“The evasive conduct of RFG and its current and former executives has done nothing to instill any confidence in the committee that all their actions are above board and would withstand thorough scrutiny by the regulators.”

While there has been heightened public scrutiny over RFG’s affairs since a Sydney Morning Herald investigation in 2017 aired claims the company exploited its franchisees, ASIC opted to conclude its investigation without making a public statement.

When asked by SmartCompany, the corporate regulator declined to provide any detail about the investigation, or why it was ended.

“ASIC confirms that we have concluded an investigation into Retail Food Group regarding possible breaches of the Corporations Act that were referred from a parliamentary committee examining conduct in the franchise sector,” an ASIC spokesperson said.

“We have not previously released details of that investigation and consistent with INFO 152 Public comment on ASIC’s regulatory activities, do not propose to make further comment at this time.”

Shares in RFG shot up more than 5% to $0.076 on Tuesday morning following its announcement, falling back to $0.069 (up 1.47%) by mid afternoon. Prior to revelations about the exploitative nature of RFG’s business model being published in 2017, its share price stood at $4.40.

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