RAMS franchisees threaten to sue

Franchisees were unfairly pressured into opening stores with no or little consideration as to the financial ability of the existing business, says the claim.

http://smallbusiness.smh.com.au
June 3, 2008

RAMS franchisees threaten to sue
Michael West

Westpac snapped up a stricken RAMS on the cheap six months ago after the abortive public float of the mortgage group, but the acquisition appears to be backfiring with a large group of the RAMS franchisees threatening to sue the bank.

About 26 RAMS franchisees, or more than a third of the 60 RAMS retail distribution outlets, are headed for mediation with Westpac this week before the Australian Competition and Consumer Commission.

For Westpac, this is something of a legacy issue, although there are claims from franchisees of threats and strong-arm tactics to keep the matter out of the press.

The bank paid $140 million for RAMS's brand and retail mortgage franchises in January. RAMS had floated in the middle of last year and its shares collapsed just days after listing on the sharemarket when global credit markets went into freefall.

Sadly, many of the RAMS franchisees also took shares in the float just before the demand for mortgages began to ease. While RAMS Home Loan Group had breached the franchise agreements by failing to deliver wholesale mortgage funding as per the contract, the franchisees are claiming against Westpac for false and misleading and unconscionable conduct.

A Westpac spokesman confirmed the dispute was headed for mediation and said the claims related to previous ownership. "We are working constructively with the franchisees," he said.

The claims centre on representations made by Westpac on available products, trailing commissions, retail space, working capital requirements and the saleability of the franchises. Franchisees were unfairly pressured into opening stores with no or little consideration as to the financial ability of the existing business, says the claim.

It may be too early to call but RAMS is not looking like the bargain-basement buy it appeared to be last year.


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Risks: Australian Competition and Consumer Commission, ACCC, Misrepresentations, Unconscionable conduct, Expand with another store across the street or we’ll sell to new franchisee, Expands too quickly, Australia, 20080603 RAMS franchisees

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