A swim school that left franchisees high and dry has been ordered to pay $23 million.
The Federal Court found the Jump Swim schools and director Ian Campbell engaged in misleading and deceptive conduct against its franchisees.
As a result, the court ordered Jump Loops and Swim Loops to pay $23 million and Campbell $400,000 personally.
Swim school left franchisees high and dry
The Australian Competition and Consumer Commission (ACCC) brought the legal action.
It came as a result of media reports revealing that franchisees had paid hundreds of thousands of dollars for swim schools that Jump never built.
Just 21 of the 174 franchisees who either entered into an agreement with Jump or paid money ended up with an operational business.
Justice Michael O’Bryan described the affected franchisees as “small, unsophisticated businesses”.
He said they made “large payments to Jump Loops and received nothing in return,”
“The conduct was likely to have had a very serious detrimental effect on the business in addition to the livelihoods of those small business owners.”
Very serious contravention of Australian Consumer Law
The court heard the sale of new swim school franchises generated almost all of Jump’s revenue of $16.1 million.
Justice O’Bryan found Jump’s conduct involved wilful blindness describing it as a “very serious contravention” of Australian Consumer Law.
“While Jump Loops conduct cannot be described as fraudulent it was deliberate in the sense that Jump Loops was aware that it could not deliver on its promises, but continued to entice persons to enter into franchise agreements and take payments from them.
“It displayed a reckless disregard of their interests and its contravening conduct deserves strong condemnation.”
Justice O’Bryan banned Campbell from involvement in franchises for five years.
The company went into liquidation in 2019, with creditors expected to receive 1 cent for every dollar owed.
Industrial advocate Miles Heffernan says buying into any franchise is extremely risky.
“Many small business operators have lost the lot investing in dodgy franchise arrangements,” he said.
“That’s why it’s important to seek expert advice and do your due diligence before diving in.”