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NBR OPENS REGULATION DEBATE AGAIN

by Simon Lord,
last updated 27/02/2017

in this article:

A recent series of articles in the National Business Review has once again raised the topic of possible regulation in New Zealand’s franchise sector.

Following the sale of the Nosh chain, the National Business Review questioned the actions of the franchisor, publicly-listed Veritas Investments, in allowing the sale of a franchised outlet on the North Shore shortly before the company’s bank issued a ‘sell or close’ ultimatum for the brand. It's one of a series of subscriber-only articles the NBR has recently run about franchising.

In the latest article, respected business journalist Karyn Scherer has reported that some franchisees (the number is not disclosed) of the 42-strong Guthrie Bowron are calling for greater mandatory disclosure provisions following the apparent failure of a new store concept launched by the chain’s previous owner, private equity firm Waterman Capital. Waterman Capital’s investors include the NZ Superannuation Fund and Accident Compensation Corporation.

The NBR suggests that some franchisees would like New Zealand to take a leaf out of Australia’s book and consider regulation to force franchisors to disclose more information to potential franchisees. However, there is little evidence to suggest that the regulation introduced in Australia almost 20 years ago and amended frequently since has been more effective than the New Zealand approach (especially where listed or private equity companies have been involved). A survey of New Zealand’s franchise sector to be conducted in April 2017 may shed more light on any differences between the two countries.

The Motor Trade Association has again spoken out in favour of regulation for the franchise sector, as it did in 2007 when the issue was investigated by the then-Labour and later National Governments following the actions of a rogue Green Acres franchisee who defrauded around 200 people of a significant sum of money. At the time, it was felt that regulation would not have prevented a criminal act, and that sector-wide legislation that affected businesses as varied as hamburgers, lawnmowing and business coaching would be an inappropriate way to deal with perceived problems within the motor trade.

The NBR brought together specialist franchise lawyer Stewart Germann and academic lawyer Gehan Gunasekara to debate the issue ­– watch here.

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