Former Refund franchisees and creditors to get 10¢ on the dollar in proposed sale

Franchisees who quit Refund before its collapse in October and in the period up until the proposed sale to State Home Loans as well as other unsecured creditors will receive just 10¢ out of every dollar owed to them if the sale to State Home Loans goes ahead.

Those franchisees who have continued to operate while the company has been in administration (and must wait until March for commission payments dating before October 2011) have effectively been asked to pledge their allegiance to State Home Loans despite not knowing anything about the potential new owner.

A letter sent out to creditors February 23 and seen by Property Observer says the deal with State Home Loans is reliant on “as many continuing franchisees as possible to agree to operate under the franchise and to sign a deed of acknowledgement and release”.

By signing the deed franchisees acknowledge “that they will not hold State Home Loans responsible for any debts owed to franchisees or any breaches of the franchise agreement by Refund Home Loans Pty Ltd”.

Franchisees who agree to continue operating will receive all outstanding upfront and trail commissions in full.

Franchisees who terminate or who have terminated their agreement (and who do not rescind this termination and agree to sign a new franchise agreement) will lose any rights to their loan books, with all commissions earned by them in writing loans collected by the administrators and distributed first to the secured creditor, which is owed $2.4 million, and then to employees of Refund, who are owed $313,000.

Any commissions owed by unsecured franchisees will be unsecured claims.

Administrators SV Partners estimate a dividend of 10.32% will be paid to unsecured creditors and terminated franchisees.

Franchisees have been left in the dark as to whether the Refund name will remain, whether any changes to the business model or structure will be made, what support they will receive, what advertising will be undertaken and what levies will be imposed on them.

Information about how State Home Loans will run the business will only be revealed once the sales contract has been signed.

The letter sent out by SV partners also does not provide any information about the aggregator, which will take over from Choice Aggregation Services in paying out future commission payments – the lifeblood of a mortgage broker’s business.

Property Observer understands that creditors and franchisees are extremely disappointed at the proposed sale and the length of time it has taken to find a buyer.

A creditor who wishes to remain anonymous has told Property Observer the information provided by the administrators and the general circumstances surrounding the outcome have caused considerable anger among creditors.

“The administrators have twice extended the time for obtaining a result on the basis that there were, at one stage, some seven credible expressions of interest. The indicated result – in terms of the forecast return to creditors – does not match that claim.

“The extension also added considerably to the fees of the administrators.”

Little is known about State Home Loans, which only received a credit licence a little over a year ago, does not appear to have a website and is not a member of either the Mortgage and Finance Association of Australia or the Finance Brokers Association of Australia, the two main industry bodies.

Property Observer has contacted the administrators for comment but had not received a response at the time of publishing.