Gloria Jeans, Donut King owner's shares dive after secret deal revealed

Shares in troubled franchisor Retail Food Group have been smashed for the second day in a row after it was revealed the company had a secret deal with a former staff member to manage stores.

RFG's shares tumbled as much as 13 per cent in early trade on Tuesday after Fairfax Media reported that the listed franchising giant had not told shareholders about the deal between itself and a company run by Alicia Atkinson, RFG's former bakery cafe director and the partner of RFG's former longstanding boss Tony Alford.

Former Retail Food Group executive Alicia Atkinson, centre, disputes the tax bill the ATO slapped on her private group Exit 57 Investments.

The Gloria Jeans and Donut King owner's shares were trading down 12 per cent, or 15.5 cents lower, to $1.14.

It was the second straight day of deep share plunges for the company which resumed trade on Monday after a two-day trading halt sparked by a dispute with its auditors. Its shares fell 37 per cent to $1.30 on Monday.

Last week, RFG, which also owns the Brumby's Bakeries, Crust Pizza and Pizza Capers brands. said it would close between 160 and 200 stores after a horror first half of 2018 that was marred by a $138 million write-down on the value of its brands.

As a result of the write-down, RFG booked a $87.8 million loss for the half, its first loss since listing on the Australian Securities Exchange in 2006 and revealed that its bankers had put new strict rules on the company.

The deal between Retail Food Group and Alicia Atkinson’s Exit 57 Investments has been laid bare after the private company collapsed last month. The company has a $2.8 million tax debt that it disputes and is also owed $1.6 million by an RFG subsidiary, which is disputed by the franchising giant.

Under the deal between Exit 57 and RFG, Exit 57 would temporarily manage stores, including some that had been abandoned by franchisees. The deal was struck in 2014 and was wound up in 2015 and 2016. Mr Alford stepped down as managing director in 2016. He was still a director at the company until July 2017. Ms Atkinson left the company in 2017.

Ms Atkinson has never been a director sitting on the RFG board and Fairfax Media is not alleging Ms Atkinson or Mr Alford were involved in the decision to award Exit 57 Investments the management deal. Nor is it alleged they were involved in any decision to not inform shareholders about the deal.

RFG’s annual reports for the past five years make no mention of Exit 57. The arrangement is not listed in the company's related party dealings.

A spokeswoman for RFG said: “RFG takes seriously its reporting obligations and believes that our annual reports have, at all times, been in compliance with those obligations."