False franchisors plead guilty

Mr Brown and Mr Parr both pleaded guilty to Crimes Act charges of obtaining by false pretences and obtaining by deception in relation to franchise companies Wizard Vapour Technology Ltd and Clean Co International Limited. In the Christchurch District Court Mr Brown was sentenced to nine months home detention and ordered to pay $24,000 reparation, which is to be paid at the rate of $300 per week. Mr Parr was sentenced to four months community detention and 150 hours community work.

The Commission began an investigation in 2005 after receiving complaints from people who had bought or were planning to buy Wizard Vapour or Clean Co franchises [Clean Co is not related to Auckland-based Clean Corp, which has over 100 franchisees - Ed]. The Commission's initial investigation found that, although the Fair Trading Act may have been contravened, there also appeared to be breaches of the Crimes Act. The case was referred to the New Zealand Police with Commission staff providing ongoing assistance to the Police in their investigation.

‘The Commission is pleased that this cooperation with the New Zealand Police has led to a successful prosecution. Where appropriate, the Commission will work with relevant agencies to ensure the best outcome for New Zealand consumers. This case gives a strong signal to franchisors that they cannot mislead or deceive in relation to the nature or potential profits of their franchise business,' said Adrian Sparrow, Commerce Commission's Director of Fair Trading.

The Commission and Police investigation found that Mr Brown and Mr Parr had made misrepresentations about both the profitability and business history of Wizard Vapour and Clean Co. In some cases, to persuade prospective franchisees to buy into the business, Mr Parr pretended to be a successful franchise holder and gave them false information about the profitability of the business he represented that he had. Franchisees were sometimes told that they were the first distributor in a particular area when this was not the case.

‘People buying into these two franchise businesses made their decisions based on false information provided to them by Mr Brown and Mr Parr,' said Mr Sparrow.

‘It is important that anyone looking at a franchise opportunity ensures that they seek professional advice and independently verify claims made about franchises before making any financial commitment. Prospective franchisees should not only rely on statements regarding earnings and ongoing support but should follow up by visiting the seller's or other franchisees' offices to check first hand what facilities there are to provide training, ordering support and other back-up,' said Mr Sparrow. ‘Any business opportunity also entails some risk and a franchise failing or not performing as expected does not necessarily mean that the Fair Trading or Crimes Acts have been breached.'

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