The Step Into Life franchise is on the brink of collapse following the owner's appearance before the Melbourne Magistrates Court on child porn charges.
Franchisees within the outdoor fitness group were rocked by the charges and now fear they will lose everything if the company becomes insolvent.
Owner John Cargnello appeared before the Melbourne Magistrates Court in January after police charged him with possession of image or movie files which depict a person under the age of 18 engaging in sexual activity.
John Cargnello, the owner of the Step Into Life franchise, has been charged by police.Credit:Paul Jeffers
Mr Cargnello maintains his innocence.
At its peak, there were 165 Step Into Life franchises operating across Victoria, NSW and Queensland, but the number has now dropped to fewer than 50 and franchisees claim the charges have driven customers away.
Darren Farrell was appointed as general manager to run the franchise while Mr Cargnello fought the charges but Mr Farrell resigned on Friday.
In an email from Mr Cargnello to Mr Farrell seen by The Age and The Sydney Morning Herald Mr Cargnello said he was consulting insolvency practitioners about Step Into Life.
"As you probably realise this is not a vanilla insolvency," he said. "The company has substantial assets and rights to future income. There have been no drawings and substantial capital injections. It is my responsibility as director of the trustee company and of the insolvency agency to ensure that the interests of employees, creditors and beneficiaries of the trust are protected."
Mr Cargnello said franchisees needed to use "appropriate channels" and could not avoid any liabilities to Step Into Life.
"All I can say right now is that Phoenix cannot avoid insolvency other than by me making further capital injections which I have ruled out," he said in the email.
Phoenix Outdoor Trading is the trustee for the Step into Life Discretionary Trust.
"How that insolvency is structured to protect the interests of all stakeholders while still allowing the insolvency agent full power to chase debtors is still under consideration," Mr Cargnello said in the email to Mr Farrell.
In a statement to The Age and The Sydney Morning Herald Mr Cargnello said Step Into Life had not been trading while insolvent and he had paid all its bills as and when they fell due.
"If delinquent debtors force Phoenix into liquidation by refusing to meet the contractual obligations it will be removed as trustee, put into liquidation and a liquidator will be appointed who will pursue those debts," he said. "If that occurs Step into Life will continue to operate under the new structure advised by our legal representatives."
A franchisee who did not wish to be named said franchisees are very vulnerable and do not know what to do next.
"I have been a franchisee for more than ten years but given the publicity, business is dying," he said.
Former franchisee Veronica Cipriani said she is in debt $40,000 after she shut her Step Into Life franchise in the Melbourne suburb of Carnegie in September last year.
"For me, it was when my customers started asking about it," she said. "My contract was up so I decided to walk away and suffer the loss instead of going against my own morals and beliefs."
A hearing for an application in Mr Cargnello's case is listed for Thursday.
Follow MySmallBusiness on Twitter, Facebook and LinkedIn.
Source: Read Full Article