Major cake store owner pays $10 million to settle lawsuit

In a $10-million settlement major cake store owner Retail Food Group has reached with Australia’s consumer watchdog, franchisees of some Michel’s Patisserie shops will have their debts wiped or be repaid.

The settlement came after the Australian Competition and Consumer Commission alleged in court RFG sold franchises to people knowing they were operating at a loss.

RFG, which runs franchises including Donut King, Gloria Jeans and Brumby’s, has not had to admit the allegations as part of the court settlement but will repay affected franchisees or wipe their debts.

This will include $5 million repaid to franchisees of Michel’s Patisserie who paid levies to RFG between July 1, 2012 and June 30, 2017.

The cost of repayments and debt waivers will cost the franchise operator $10 million. Some franchisees will get a voluntary $20,000 payment from RFG.

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The watchdog had also alleged marketing expenses at Michel’s Patisserie were illegitimate, but this was not disclosed to franchisees and went ahead without a majority consenting to the spending.

ACCC chair Gina Cass-Gottlieb said the settlement was a more beneficial outcome for franchisees than if the watchdog had continued court action.

“We initially took this action because we were concerned with the alleged conduct and the impact on a number of small business operators,” Ms Cass-Gottlieb said.

The legal action started in 2020 against RFG.

The settlement will also see the operator regularly report to the watchdog, introduce a new compliance program and contribute to the ACCC’s legal costs.

With AAP.