Federal Court freezes JUMP! Swim Schools assets as ACCC seeks $4 million in refunds for franchisees

The assets of troubled learn-to-swim franchise JUMP! Swim Schools have been frozen by the Federal Court following an urgent application by the Australian Competition and Consumer Commission (ACCC).

The ACCC applied for the asset freezing order against JUMP! founder and Chief Executive Ian Campbell and Swim Loops Holdings, Jump Loops and associated entities Jump Swim Schools Construction, Jump Swim Schools Leasing, Jump Swim Schools, Blue Paddle, Reef Services and JS Reef as it prepares to bring proceedings against the group.

With Swim Loops Holdings, the company that represents the largest number of JUMP! Swim Schools, having entered into voluntary administration, the ACCC this week alleged that representations made to franchisees that they would have an operational swim school within 12 months were false, misleading or deceptive.

In a Federal Court hearing this week, Justice Michael O'Bryan found that the ACCC had met the arguable case threshold with regard to representations.

Justice O'Bryan heard evidence that Jump had said to franchisees that there would be a "12-month turnaround from sign-on to open" on the franchise.

However, 68 franchisees were not operating after 12 months as a result of which the Commission is bringing proceedings against Jump and Campbell, seeking orders directing payment of at least $60,000 to each of these franchisees.

The total size of the franchisee refunds and compensation is expected to be at least $4 million.

Justice O'Bryan ordered Jump and Campbell not to remove assets from Australia or in any way dispose of, deal with or diminish the value of the assets.

Campbell will be allowed up to $2000 a week in living expenses.

Justice O'Bryan heard evidence that Jump received "many millions of dollars" in fees from franchisees in 2017 and 2018 but the assets held by the business are "relatively modest".

The orders refer to nine different court proceedings against Jump that are underway, while Australian Securities and Investments Commission searches show Campbell and former Jump Director Stefan Szpitalak incorporated a number of new entities in the last few months including JS Reef in April, Reef Service and Blue Paddle in May.

According to court documents, the ACCC received information from a franchisee that he was advised by an employee of Jump Loops that it intended to transfer all operating franchises to Blue Paddle.

With suggestions that assets owned directly or indirectly by the prospective respondents might be dissipated, Justice O'Bryan stated “the evidence, therefore, establishes the risk that the Jump Swim group may attempt to transfer the franchise business and assets to Blue Paddle Pty Ltd, possibly in an attempt to avoid the consequences of the complaints made, and legal proceedings brought, against entities in the Jump Swim group.”

He also noted evidence indicating Campbell has established a number of new companies and businesses in the USA and New Zealand, and evidence from financial crime watchdog Austrac of substantial financial transfers between Jump and overseas entities.

This seems to include a new swim school franchise based in Piano, Texas named ‘Raised on the Reef’, which was registered on 12th April. While the ACCC has so far been unable to obtain registration details of the website, the ‘about me’ section features images of Campbell.

It was this issue of dissipating funds that led to Justice O’Bryan’s decision to freeze assets.

He advised “the foregoing evidence satisfies me that there is a reasonable apprehension that assets owned directly or indirectly by the prospective respondents will be dissipated so as to frustrate the relief that will be sought by the ACCC in the proposed proceeding.”

A spokesperson for the ACCC said if the watchdog is ultimately successful it will apply to the court for any preserved funds to be used to compensate affected Jump franchisees.

In addition, the group may face additional action.

Robert Toth, partner at Marsh & Maher Richmond Bennison said these kinds of rulings were generally the pre-empting of a larger scale legal proceeding.

Toth told Inside Franchise Business “this is all part of the process of seeking an injunction and substantive preceding.

“In a normal case, the judge will allow a couple of weeks for the applicant to bring their proceeding to court, in this case alleging misleading and deceptive conduct.”

For Jump and Campbell, the return date sees an opportunity to consent or establish a case to fight proceedings, with Toth adding “the return date is an opportunity for respondents to turn up and argue the proceedings, request a lift to the freezing order, or in some case consent to the order.

“This current order allows all the companies to trade in a normal order of business, however, should, the respondent not turn up, it will set up the case for a permanent injunction.”

The return hearing is scheduled to be held on 20th June 2019.

Image: Jump founder Ian Campbell (top) and Campbell after being named Australian Emerging Franchisor of the Year in 2016 (below). Images courtesy of JUMP! Swim Schools.