Franchisees’ rights unclear as A&R faces court date

The administrators of REDgroup Retail have initiated court proceedings against the 25 Angus & Robertson franchisees that have terminated their agreements with the company, raising questions about the rights of franchisees in the event of a company collapse.

Earlier this year, REDgroup Retail was placed in the hands of administrator Ferrier Hodgson, which has since closed almost 50 Angus & Robertson stores.

Last week, 25 Angus & Robertson franchisees announced plans to become independent booksellers, claiming REDgroup had breached franchise agreements.

This prompted Ferrier Hodgson to initiate court proceedings against the franchisee breakaway group, with the parties set to face off in the New South Wales Supreme Court on April 13.

Ferrier Hodgson partner Steve Sherman said in a statement he has received legal advice on the issue and is convinced the breakaway group’s actions are baseless.

Sherman said at no time has Angus & Robertson breached the relevant franchise agreements, and the administrators will be seeking recovery in the courts as required by law.

“We have reviewed their notices of termination and are confident there is no proper basis for termination of the franchise agreements,” Sherman said.

“Consequently, in order to protect the interests of the unsecured creditors and to preserve the integrity of the REDgroup companies, we have commenced proceedings seeking confirmation that the terminations are invalid and unlawful and that the franchise agreements remain on foot.”

“We will also be seeking orders for recovery of the arrears owed to Angus & Robertson under those agreements.”

Sherman said that as administrator, he has a responsibility to pursue these arrears on the behalf of all creditors and that the action was a necessary step in preserving the integrity of REDgroup.

Marie Fitzpatrick, who acts as spokesperson for the breakaway group, says the group is “very surprised” about Ferrier Hodgson’s decision to initiate court proceedings.

The group claims an Angus & Robertson representative “actively encouraged” them to “properly de-badge” from the company following the termination of their franchise agreements.

The group says Angus & Robertson is also “seeking orders which could mean that people who do not wear A&R clothing could be put in jail”.

“At a time when the Angus & Robertson group is in disarray after the collapse of REDgroup, it is surprising that a company that is [in] administration would seek orders to compel unwilling small business owners to work with them,” the group said in a statement.

“The business of Angus & Robertson would benefit more from Mr Sherman from Ferrier Hodgson turning his attention to assisting a collapsed company rather than pursuing a group of franchisees who have a right to terminate their relationship with a failed parent company and simply wish [to] continue in business as independent and profitable bookstores.”

“We consider it more appropriate for funds to be spent on supporting the remaining business or paying staff entitlement to the 990 staff that have been made redundant.”

“We regard the application as being without merit. We look forward to having the matter determined when it is before the courts… and we will not be entertaining any delays.”

A franchising expert says franchisees’ rights remain unclear when their franchisor enters into administration, but a company collapse generally doesn’t relieve franchisees of their obligations.

Jason Gehrke, director of the Franchise Advisory Centre, says in the case of Angus & Robertson, the onus will be on the breakaway franchisees to prove a breach of the agreement has occurred.

Gehrke cites the 2008 collapse of jewellery chain Kleins is another example of the uncertainty surrounding franchisees’ rights when the franchisor enters into administration.

Following the appointment of Ferrier Hodgson, Kleins franchisees were given 14 days’ notice of the intention of the administrator to terminate their franchise after it failed to attract a buyer.

Administrator James Stewart said the Kleins franchise agreement stated that franchisees were unable to extricate themselves regardless of the company’s performance.

“They didn’t have the ability to walk away if the franchisor doesn’t perform. They are reliant on the franchisor to perform to the specifics of the franchise agreement and also to keep the business model relevant,” he said.

Speaking on behalf of the Angus & Robertson case, a Ferrier Hodgson spokesperson says he was not aware of any A&R representative encouraging the franchisees to de-badge, stating: “The point is that the breakaway group has stopped paying franchise fees.”

He says court action is intended to get guidance on whether the breakaway franchisees are legally entitled to terminate the franchise agreement rather than seek other fees.

“Until we have that answer from the court, we are urging the franchisees to continue displaying A&R signage and to continue trading according to the franchise agreements,” he says.