A director at the struggling franchisor Retail Food Group raised conflict of interest concerns when she started her own private food brand and tried to sell her products to RFG's struggling Gloria Jeans, Michel's Patisserie and Brumby's cafe chains.
Senior managers raised objections over the development of non-executive director Jessica Buchanan's food brand Naytiv, several people with knowledge of the matter said.
Ms Buchanan started Naytiv in 2017 and pitched its health-conscious drinks, biscuits and other snacks to the company with the plan to have them sold at hundreds of RFG franchise cafes.
In response to questions, an RFG spokeswoman said Ms Buchanan's fellow board members considered a proposal from her to distribute Naytiv products, but decided in March this year not to proceeded with the idea.
The logo for Naytiv, a food brand developed by Retail Food Group director Jessica Buchanan. Credit: IP Australia
Ms Buchanan developed Naytiv "in her own time, at her own expense", and RFG considered her proposal because of her "extensive experience in branding, marketing and advertising".
Naytiv was not being "currently considered" by RFG, and no Naytiv products would be distributed through the RFG franchise networks, she said.
Sources said the Naytiv project stalled through most of 2018, when RFG was being run by former CEO Richard Hinson, and an attempt to restart it was made after he left the company in late 2018. It appears to have never entered production.
Related party transactions are not unusual at large companies but must be carefully managed to avoid conflicts of interest, with the Corporations Act forbidding directors from "improperly" using their positions "to gain advantage for themselves”.
Conflict of interest issues have been raised before at RFG, with this publication revealing in May that the man appointed to run RFG's coffee bean business, Australia's "king of coffee" Phillip Di Bella, was buying about $1 million of raw beans a year from his own private company.
A damning parliamentary report into the franchising sector in March slammed RFG for operating an "unjust" business model in which senior executives and shareholders profited at the expense of franchisees.
That inquiry recommended that regulators probe insider trading, tax avoidance, directors’ duties and market disclosure at the company.
RFG is now being run by turnaround specialist Peter George, who joined the company's board in September last year and was made executive chairman two months later.
Ms Buchanan has been on RFG's board since 2012, making her its longest serving director. She is one of only two directors to survive a boardroom and management clear-out that has occurred since late 2017, when The Age and SMH revealed that many RFG franchisees were struggling to survive.
Since those reports raised questions about the sustainability of the company's business model, RFG's share price has dived from $4.40 to 20¢, and it is now trying to negotiate a bail-out deal to pay down its $260 million debt.
Ms Buchanan has also been a consultant to RFG through her marketing firms Brands R People 2 and Consumerology. RFG has paid Ms Buchanan's firms close to $276,800 since 2014 for these services, in addition to her director fees.
Ms Buchanan owns 11,628 RFG shares, which at the peak of their value in early 2015 were worth around $90,000 and today are worth about $2000.
RFG said Ms Buchanan had continued to consult to the company through 2019 - which happened on arm’s length terms, on an as-needed basis and at market rates - and that her work this year had led to a boost in sales of more than $2 million.
RFG said she did not have any more influence over the running of the Gloria Jean’s, Michel’s and Brumby’s brands than any other non-executive director but the board would take her consulting work into account when assessing her ongoing independence.
Corporate documents show Ms Buchanan founded the company Naytiv Holdings in mid-2017, and is its sole director and ultimate owner. She trade-marked the Naytiv brand, logo and slogan "A better alternatyiv" in September that year.
RFG plunged to a $111 million net loss for the six months to December 31 and its banks have waived the testings of its debt covenants several times.
The company is in talks with Sydney fund Soliton Capital, which is backed by Hong Kong's SSG Capital, over a $160 million debt and equity refinancing proposal.
Contact the reporter: patrick.hatch@smh.com.au