Call for franchising regulatory body

It has followed, with great concern, the allegations by franchisees and media reports on the demise of the Rhapsody's brand. According to Vera Valasis, FASA's executive director, "We are aware of the allegations against the company as well as the claims submitted by franchisees and are disappointed that such a well-known and popular brand should become a business fatality with franchisees bearing the brunt of its collapse."

FASA is shocked at the liquidation of the franchisor, which was set up as a bona fide franchise and went through the proper channels to become a member of FASA, complying with all the necessary requirements to become a member, supplying the association with the necessary documents and disclosure documents. The brand grew in popularity and the association was only made aware of problems within the group when it was reported that Flavours of Life was under 'business rescue' with Rhapsody's subsequently not renewing its FASA membership.

According to Ian Jacobsberg, chairman elect for FASA, "The association takes every report of unethical conduct by a member seriously. Unfortunately, the association was not privy to any details of the complaints and the only information has been what has been reported in the media. Investigations into legal disputes between franchisor and franchisee can only be done when proven facts are available, such as when both parties agree to engage in mediation through the association, or when a party to a dispute, with personal knowledge of the matter, provides first-hand evidence.

"In light of this and until such time as the association can gather sufficient information from the impending liquidation, it would be improper to make a judgement on the strength thereof. Although Rhapsody's declined to renew its membership in the light of the liquidation, the association will continue to follow developments closely and as soon as concrete facts are available will not hesitate to act if appropriate."

Voluntary association cannot take action

As FASA is a voluntary organisation and has no statutory powers, it is not in a position to determine financial and legal disputes between parties or take action against non-members. Its powers are limited to taking disciplinary action against members, including suspension or termination of membership. While it does offer its members and their franchisees an effective mediation service, this can only happen if both parties agree and before any litigation takes place.

Worked with CPA to protect franchisee interests

The association worked tirelessly with the authors of the Consumer Protection Act to ensure that some franchise regulation was introduced, of which one of the key elements is that a franchisor should provide every prospective franchisee with a Disclosure Document, which includes current relevant and required information. However, the enforcement mechanisms currently in place are not sufficient and the association is working towards becoming the alternate dispute resolution authority for the industry - with jurisdiction over all franchises - whether FASA members or not.

It is planning to apply to the Consumer Protection Commission for the acceptance of an industry code for the franchise sector and to become the ombudsman for franchising in South Africa. This would be a big step forward in protecting ethical franchising, helping those in the sector with their complaints and to promote and consolidate the industry.

Ethical franchising critical to industry growth

According to Derek Smith, FASA chairman, "Incidences of fraud within franchising do not occur very often, but when they do happen it is normally at the very start of a franchise with individuals that start out with ulterior motives and are intent on defrauding potential franchisees, irrespective of the laws put in place to curtail dishonesty or misconduct. To see a top-end franchise entity, where franchisees ploughed huge sums of money to set up their outlets and the brand gaining solid credibility, crumble so suddenly is very concerning to all who value the principles of ethical franchising.

"One should always approach a partnership/franchise agreement cautiously with this in mind and ensure appropriate safeguards when investing any sum of money into a business venture. Prospective franchisees should feel comfortable or confident in their ability to build a good working relationship with their prospective franchisor and this can only be achieved by doing thorough research and being cautious in handing over any sum of money."

FASA has spent the past 34 years dedicated to ethical franchising, guiding and safeguarding the reputation of the sector, which now contributes close to 10% to the country's GDP.

The requirements of becoming a member are stringent and, in the absence of legislative powers, it makes every effort to make sure that its members have the correct structures and support systems required of a top class franchise system and in turn guide prospective franchisees in making informed choices and being thorough in their assessment of a franchise opportunity.