Why Pastacup has copped a $100,000 fine

Pastacup has been fined $100,000 for failing to disclose relevant information to franchise buyers.

The Federal Court ordered Pastacup franchisor Morild Pty Ltd to pay the penalties for breaching the Franchising Code of Conduct, following ACCC proceedings.

The company’s co-founder and former director, Stuart Bernstein, has also been ordered to pay $50,000 for being knowingly concerned in the breaches.

Bernstein co-founded the Pastacup franchise in 2008 and has managed and been a director of two previous franchisors of the Pastacup franchise system that each became insolvent.

But the Court found that Morild failed to provide a disclosure document which complied with the Franchising Code to franchisees, because the document did not disclose Bernstein’s previous directorship of the insolvent Pastacup franchisors.

The Court held that this was relevant business experience that was required to be disclosed to prospective franchisees. The Court also found that Bernstein was knowingly concerned in Morild’s conduct.

“These are the first court ordered penalties for breaches of the new Franchising Code. These significant penalties should send a strong message to other franchisors that they must meet their disclosure obligations,” ACCC deputy chair Dr Michael Schaper said.

“The Franchising Code requires franchisors to provide prospective franchisees with a disclosure document which contains important information about the franchise and the franchisor. Full and accurate disclosure by the franchisor is essential to enable prospective franchisees to make informed business decisions.”

Morild consented to the penalties, declarations and injunctions by the Court and to an order that it pay a contribution to the ACCC’s costs.