Macquarie and Chase Manhattan – Vendors and Buyers Beware

General Category on May 14th, 2014 Comments Off

The Australian Institute of Business Brokers (AIBB), the peak industry body representing Business Brokers, has received confirmation from the office of the Queensland Department of Justice and Attorney-General regarding its complaint against Macquarie Commercial and Business Sales Pty Ltd (Macquarie) for an alleged conflict of interest between Macquarie Commercial & Business Sales Pty Ltd and HP Media (HPM), publisher of a Business For Sale magazine promoted by Macquarie.

The Department investigated if a conflict of interest existed between Macquarie and Mt Timothy Abberton a Director of both Macquarie and HP Media under section 14 of the Property Agents and Motor Dealers Act (Real Estate Code of Conduct) Regulation 2001 (Fraudulent and Misleading Conduct).

The AIBB has been advised that the investigation supported the Institute’s allegation and that enforcement action against Macquarie concerning a contravention of the above Act has been taken by the Office Of Fair Trading.

This comes on the back of the Institute’s complaint to the ACCC of fraudulent misrepresentation against Macquarie in 2011 and subsequent advice from the ACCC that its complaint had been dealt with by the Commission and the misleading and deceptive publication has been withdrawn by Macquarie.

In that instance the AIBB complaint related to a leaflet distributed widely by Macquarie to business owners throughout Australia specifying (amongst other things) that Macquarie had a 96% successful sales record and 90% achieved expected sales. Given industry averages, these representations appeared to be grossly exaggerated and could not be substantiated by Macquarie.

The AIBB has been concerned for many years that many Australians are being deceived by operators who are known in the industry as ‘marketeers’. Such operators, purporting to be licensed Business Brokers, are taking business owners for a ride by convincing them to part with a substantial upfront payment for advertising (often $6,000 to $20,000 or more) to sell their business without any follow through with professional services.

The advertising is charged at rates considerably higher than comparable advertising and is placed with a publisher in which the operator has a relationship or financial interest. With a substantial financial gain made from the advertisement, the operator has little incentive to then vigorously pursue the sale of the business. The business owner often suffers the resulting loss of money, time and opportunity.

With many of Australia’s estimated 2.7 million SME’s expected to change hands over the next 10 years as the baby boomers transition into retirement, industry practices and the conduct of people engaged in business sales must be beyond reproach, otherwise, many of these retirees may fall victim to marketeers engaging in deceptive and unprofessional conduct.

In New South Wales, the decision of the Consumer, Trader and Tenancy Tribunal against a company – Chase Manhattan Business Brokers – highlights the modus operandi of such operators

Often, the company will make initial contact by direct mail advertisement and require the business owner to sign and fax back an expression of interest. The company’s access to a large pool of overseas buyers will be promoted along with the suggestion that these buyers will pay a premium to buy the business in order to qualify to migrate to Australia.

After an unrealistic expectation is given as to the value of their business, the business owner is told that in order to attract these overseas buyers, it is essential to advertise in a particular magazine (in the case of Chase Manhattan Business Brokers, the Business Investment and Lifestyle Sales publication). If this is done, the suggested price will be achieved and the business sold within a matter of weeks.

The business owner is then asked to sign on the spot and pay the advertising cost as the publication is just about to go to print, otherwise they will miss out.

Unfortunately, once the money is paid things usually get worse. There is often little if no enquiry, attempts to contact the company are unsuccessful and any expression of dissatisfaction with the service are ignored.

This is not to say that there are not genuine overseas buyers or that advertising does not have its place in selling a business, after all, you can’t sell a secret. The right advertising at the right price may expedite a sale. However, the problem arises when the advertising is being placed with a related publisher at an inflated price in the hope of snaring an elusive buyer.

As stated by the Tribunal: “the [marketeer] created a scheme whereby a substantial payment could be obtained in advance, independent of the sale and at a time when the prospective vendors were being subject to a high pressure sales pitch by the [marketeer's] sales consultant.”

The Tribunal went on to state: “If the [marketeer] did not benefit from the payment made by the [business owners], it would be expected to have pursued a sale of the property vigorously in order to earn a commission. In other words, once the marketeer has your advertising money, they don’t care if they sell your business.”

As the peak industry body representing professional Business Brokers in Australia the AIBB is committed to eliminating conduct of this nature from the industry and through representations to government regulators such as the ACCC and Offices of Fair Trading in each State, we intend to send a clear message to marketeers and business agents engaging in misleading and deceptive conduct to carefully consider the consequences of their actions.

This entry was posted in AIBB News, Press Release on April 28 2014 by admin.

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