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Troubled franchisor Retail Food Group (ASX: RFG)
is facing a possible second class action over allegations its share price suffered because of its "exploitative and unsustainable" franchise model along with claims it failed to inform the market of its "true state of affairs."
Maurice Blackburn says it has begun investigations into the possible class action on behalf of shareholders who bought shares from June 2, 2015, until the company entered a trading halt on February 28, 2018.
Retail Food Group is also facing the potential for a class action by Bannisters following a damning report from Fairfax Media which alleged it operated a business model that had sent hundreds of franchisees within its network to the wall financially and that there was widespread underpayment of staff by store owners.
"The proposed shareholder class action relates to a string of damning revelations about the company that were exposed from December 2017 to 3 March 2018," Maurice Blackburn says.
"The information, including revelations of an exploitative and unsustainable franchise model, saw the company's share price go from well over $4 to under $1.30 when the company came out of the trading halt it entered on February 28, 2018.
"More than $550 million has been wiped from the company's market capitalisation. Publicly available information suggests that RFG adopted an exploitative business model as early as June 2015 yet it failed inform the market of its true state of affairs.
"This is information the market should have been made aware of in order to fairly price the stock."
RFG has said it will defend any class action should it proceed.
On Monday and Tuesday, shares in RFG were savaged by investors with the price dropping 37 per cent and 12 per cent respectively after it resumed trading after a two day trading halt.
RFG went into the trading halt last week because of a dispute with its auditors and, as a result, its disastrous half yearly results were delayed until Friday.
The half year report revealed a net loss after tax of $87.8 million, compared to $32.7 million profit in the previous half year and $138 million in writedowns on the value of its brands.
RFG, which operates food franchises such as Donut King, Gloria Jean's Coffee and Pizza Capers, Crust Pizza and Michel's Patisserie, cited "challenging trading conditions" while acknowledging its own "disappointing performance" as it outlined its business-wide review to turn the company around.
As part of the business-wide review, RFG says it will close between 160 and 200 outlets as the company negotiates rent decreases on its "unsustainable" stores.
The company says it is also aware that it needs to improve the support it provides to its franchisees.
RFG shares were trading steady at around 11.30am AEDT at $1.13.
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