Franchising

A&R franchisees launch breakaway bid

Emma Krieger /

A group of Angus & Robertson franchisees have terminated their agreements with parent company REDgroup Retail, sparking a battle with the administrator of the embattled bookstore chain. 

 

REDgroup Retail, which also operates the Borders bookstore chain, was placed in the hands of administrator Ferrier Hodgson in February.

 

Yesterday, 25 Angus & Robertson franchisees announced plans to become independent booksellers, claiming REDgroup has breached franchise agreements.

 

Marie Fitzpatrick, owner of the Bookshop Bowral, formerly Angus & Robertson Bowral, says REDgroup failed to provide services it was obliged to, including advertising and management advice.

 

“All we have received from our franchisors since voluntary administration has been demands for payments,” she says.

 

Fitzpatrick says the group is yet to be contacted directly by the administrator but has received an “enormously positive” customer response to its decision.

 

A legal battle is now looming for the breakaway group, with Ferrier Hodgson declaring it doesn’t accept the franchisees’ terminations.

 

“The administrators strongly refute the purported terminations and intend to hold each of the franchisees fully accountable under the terms of the franchise agreements,” Ferrier Hodgson’s Steve Sherman says.

 

Angus & Robertson franchisees pay about 6% of revenues to REDgroup, so the loss of this revenue will make it even harder for Ferrier Hodgson to turn the brand around.

 

Just last week, the administrator announced 12 Angus & Robertson store closures, adding to the 37 stores closed earlier this year.

 

One Angus & Robertson franchisee says he was contacted by the breakaway group but has decided to remain with the brand.

 

“I don’t think the Angus & Robertson brand is done yet and I wasn’t prepared to spend money on a legal challenge,” he says.

 

Franchising experts say when a franchisor enters into administration, the rights of franchisees remain a grey area.

 

Jason Gehrke, director of the Franchise Advisory Centre, describes the breakaway group as “bold”, saying it is generally the case that the collapse of a franchisor doesn’t relieve franchisees from their obligations, and the onus will be on the independent retailers to prove a breach of the agreement has occurred.

 

Gehrke says if the shoe was on the other foot, the franchisor would generally be obliged to send the franchisee a breach notice to outline the nature of the breach, what needs to be done to fix the problem and a reasonable time to do so.

 

He expects Ferrier Hodgson to put up a fight.

 

“The administrator will not let this pass lightly because they are obliged to preserve as much value in the asset as they can, and if the franchisees exit the system, then that substantially erodes the value of the asset that the administrator has available to sell to a future buyer,” he says.

 

Frank Zumbo, associate professor at the University of New South Wales, says usually when a parent company collapses, administrators sit down with franchisees and nut out an agreement, particularly if the landlord is willing to extend the lease to an independent store.

 

“The administrator is often happy to let them go on the basis that it’s one less thing to worry about, but it depends on whether the administrator feels it could find a buyer,” Zumbo says.

 

He says an obvious way to improve the issue would be to legislate to allow the franchisee to terminate the agreement when a franchisor goes into administration.

 

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