Troubled Retail Food Group faces †Free Samples to Students

Question: Discuss about the Troubled Retail Food Group faces. Answer: Introduction: Retail Food Group, or RFG, is a global food and beverage company, having its headquarters in Australia. It is the largest multiband retail food franchise in the nation, along with being a roaster and a supplier of high quality coffee products. The company is also coming out as a leader in the wholesale bakery sectors, foodservices and dairy processing (RFG, 2018). Even with so much working in its favour, RFB has been in the headlines in the recent times, particularly regarding the potential class actions by the different parties. This report focused on what these issues had been and the major developments in this context. Once this is done, the report would shed light on the regulatory authority which might be involved in the possible investigation. And lastly, before concluding, the possible remedies in such situation would be discussed. RFG is present a troubled franchisor, which is facing possible class action owing to the accusations regarding the group misleading its investors regarding the manner in which the business model of RFG would affect the store owners. Investigations have already been started against the Donut King and Gloria Jeans chains by Maurice Blackburn in a clash action on shareholders behalf. There is another class action being investigated by Bannister, a law firm (Rask Media, 2018). All this happened in the light of the shares of RFG tumbling once the revelation regarding a secret deal being made by Fairfax Media with a former executive for managing stores came out. The troubled owners of Donut King and Gloria Jeans chains failed to inform their shareholders that the business was being done with a private company, which was being run by former executive, who also had been the partner of long standing boss of the company. This deal came to light in context of RFG and Exit 57 Investments of Alic ia Atkinson after the collapse of private company collapsed (Danckert, 2018a). It was stated by Ben Slade, the Maurice Blackburn principal that the class action investigation would be for the shareholders who had purchased shares back in June 2015 to this years February on the allegations of breaching the continuous disclosures (Pash, 2018). The shares of RFG fell badly on consecutive days due to this possible class action looming in the future of the company. The crux of this matter was the deal between Atkinson and RFG, which fell through, resulting in company getting a $2.8 million tax debt and stated that RFG subsidiary owed $1.6 million. The deal between Exit 57 and RFG was such that the former had to temporarily manage the stores, which included the ones abandoned by RFG. This deal took place in 2014 and was ended in 2015 and 2016. In 2016, Alford stepped down from the position of managing director, but he continued to be a director of company till July 2017, after which he left the company. All this had been valid and of no problem, if the requisite disc losures had been made. But the annual reports of last five years of RFG made no mention of Exit 57 and the arrangement had not been listed in the related party dealings of the company. The company failed in taking the reporting obligations in serious manner, even when it is an ASX listed company (Danckert, 2018b). The issue in this case majorly revolves around the potential breach of Regulatory Guide 76, which is related to related party transactions. Every listed company on Australian Stock Exchange is required to follow RG 76, in addition to the provisions which had been laid down in the Corporations Act, 2001. Based on this, there is a need to disclose the transactions which take place with the related party, and to take necessary permission before such transactions are entered into. Section 208 of the Corporations Act, 2001 provide that an entity controlled by public company, or a public company in itself is required to give the financial benefit to the public companys financial benefit. This requires members of the company to approve transactions as have been covered under section 217-227; unless the financial benefit falls in exceptions covered under sections 210-216. There are also statutory duties imposed on directors of the companies through sections 180-184 of this act, and the commo n law duties, regarding it being a duty of the directors of the company to take approval and to disclose of such matters (ASIC, 2011). Regulatory Authority In the event where the aforementioned sections and regulations are not complied with by any organization, a case can be raised against the directors and the company for the breach of pertinent sections to the ASIC, i.e. Australian Securities and Investments Commission. So, the potential class action can be initially brought to the ASIC as it is the regulatory body which looks into the breaches of Corporations Act, and also that of the breaches of the regulatory guides which the ASX listed companies have to follow (ASIC, 2011). Upon a case being raised before the ASIC, a fully fledged investigation would be launched into the affairs of RFG. Apart from this, the role of different directors, particularly the former executive who also had been the partner of long standing boss of the company, would be under investigation. This would be in particular reference to the breach of director duties. The reason for a breach of director duties being investigated upon in this case against RFG stems from the fact that the Corporations Act bestows important duties which the directors have to abide by. These include the civil obligation of duty of care and diligence under section 180; good faith under section 181; use of position under section 182; use of information under section 183; and criminal offence for breach of good faith, and use of position and information under section 184 (Cassidy, 2006). Where the significant matters like related party transactions are not disclosed in a proper manner by the directors of the company, before the shareholders, and the requisite permission is not taken from the shareholders, it shows that the directors had not worked in a diligent and careful manner. This also shows that the lack of good faith being deployed, and the misuse of both position and information of company. The severity of this matter would also attract the criminal penalties, in addition to the civil penalties (Paolini, 2014). Apart from the directors duties, the provisions covered under section 208 were also beached by RFG as they did not take the relevant approval from the members in accordance with section 230 of this act (Federal Register of Legislation, 2018). Apart from the legislative requirements, the regulatory guide was also contravened, giving ASIC the full chance of raising claims against RFG for breaching the regulatory requirements in terms of Corporations Act and ASX Listing Rules (ASIC, 2011). Possible remedies Whenever a claim is made against the company or the directors in context of the aforementioned provisions, there are certain defences which the parties can claim, to safeguard against possible liabilities attached with these claims. RFG too is ready to defend this class action vigorously (RFG, 2018b). For instance, the directors can make use of the business judgement rule given under section 180(2) of the Corporations Act (CCH Australia, 2011). By using this section, the directors can show that they undertook the business decision after carefully analysing the situation based on their skill level and based on the information provided by others, which they analysed on the basis of their knowledge. However, due to the magnitude of case being prepared against RFG in terms of class action, there is high chance of such defence failing. This is because the ASIC would make an application for the class action applicants to get adequate compensation as a remedy for the different breached by the RFG and its directors. This would enable the shareholders in recovering their lost money, when the shares of the group fell down. Also, as remedy, the guilty directors could be disqualified for breaching their director duties, and barred from holding directorship positions for certain time. So, the order passed by the ASIC would have to be confirmed by the court, before the remedies actually come in the hands of the class action applications. Conclusion Thus, from the analysis of the present storm being faced by RFG, it can be concluded that the position of the company is not strong enough. It is most likely to face the brunt of the actions undertaken by its management, where the shareholders were duped. Not only were their rights snapped away, but they also had to bear loss in terms of tumbling stock prices, all because the management failed in disclosing the related party transactions. As a result of this instance, different regulatory and legislative compliances were not undertaken, resulting in the ASIC getting the power of investigating on the claimed upon breaches. Where this investigation reveals that the company and its directors had been guilty of such contraventions, the class action would provide the applicants with remedies, as decided upon by the court. References ASIC. (2011). Related party transactions. Retrieved from: https://download.asic.gov.au/media/1239851/rg76-published-11-may-2011.pdf Cassidy, J. (2006). Concise Corporations Law (5th ed.). NSW: The Federation Press. CCH Australia. (2011). Australian Corporations Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. Sydney, NSW: CCH Australia. Corporations Act, 2001 (Cth) Danckert, S. (2018a). RFG's secret deal to manage stores under scrutiny. Retrieved from: https://www.smh.com.au/business/consumer-affairs/rfg-s-secret-deal-to-manage-stores-under-scrutiny-20180305-p4z2xh.html Danckert, S. (2018b). Troubled Retail Food Group faces potential class action. Retrieved from: https://www.smh.com.au/business/consumer-affairs/troubled-retail-food-group-faces-potential-class-action-20180306-p4z32w.html Federal Register of Legislation. (2018). Corporations Act 2001. Retrieved from: https://www.legislation.gov.au/Details/C2013C00605 Paolini, A. (2014). Research Handbook on Directors Duties. Northampton, Massachusetts, United States: Edward Elgar. Pash, C. (2018). Retail Food Group now faces a potential class action from disgruntled shareholders. Retrieved from: https://www.businessinsider.com.au/retail-food-group-class-action-maurice-blackburn-2018-3 Rask Media. (2018). Why Retail Food Group Limited Shares Fell 5% on Friday. Retrieved from: https://www.raskmedia.com.au/2018/01/19/retail-food-group-limited-shares-fell-5-friday/ RFG. (2018a). People who put the love in food. Retrieved from: https://www.rfg.com.au/ RFG. (2018b). RFG Response to Potential Class Action. Retrieved from: https://www.rfg.com.au/2018/02/02/rfg-response-to-potential-class-action/