Liquidator appointed to JUMP! Swim Schools entity
Struggling franchisor JUMP! Swim Schools has had one of its major entities wound up in insolvency by order of the Federal Court.
Under provisions of the Corporations Act 2001, court appointed liquidator has been brought in to oversee Jump Swim School Services Pty Ltd.
The latest decision comes after a lengthy legal battle between JUMP! and the Australian Taxation Office (ATO), which filed its application for the wind-up in April. However, the appointment of PwC’s Michael Owen as liquidator is just one in a long list of issues facing the brand.
Earlier this week, the Federal Court opted to freeze the assets of JUMP! Swim Schools, its subsidiary companies and founder Ian Campbell following an urgent application by the Australian Competition and Consumer Commission (ACCC).
In the hearing, Justice Michael O’Bryan found that the ACCC’s concerns over representations held significant merit. The watchdogalleged that representations made to franchisees that they would have an operational swim school within 12 months were false, misleading or deceptive.
“In some cases, no operational franchise was provided at all, and in other cases operational franchises were provided within a much longer timeframe than 12 months,” O’Bryan told the court.
Documents reveal that the ACCC applied for the order against JUMP! Swim Schools founder and chief executive Ian Campbell, Swim Loops Holdings and Jump Loops. However, it was the inclusion of a number of other related entities that raised new concerns.
The court heard that a new entity related to the business, Blue Paddle Pty Ltd was incorporated in May 2019, with Ian Campbell as the sole director.
According to court documents, the ACCC received information from a JUMP! franchisee who had been alerted by a Jump Loops employee that the company intended to transfer all operating franchises to Blue Paddle Pty Ltd.
The proposed transfer of businesses was enough for Justice O’Bryan to voice concern.
“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 said.
Despite the heavy burden of legal proceedings effectively placing one of the group’s companies in voluntary administration, it wasn’t the only new business that had sprung up over the past few months.
Raised on the Reef
Evidence also indicated that JUMP! Swim Schools had established, or was the process of establishing a number of new businesses and franchising entities in the US and New Zealand.
A new swim school franchise based in Piano, Texas named “Raised on the Reef” was registered on April 12. While the ACCC has so far been unable to obtain registration details of the website, the ‘about me’ section is emblazoned with images of JUMP! Swim Schools founder Ian Campbell.
The ACCC also provided evidence from AUSTRAC of financial transactions undertaken by entities within the Jump Swim group.
The transactions revealed that substantial transfers had occurred between entities in Australia and New Zealand, in addition to other overseas companies.
It was this issue of dissipating funds that led to Justice O’Bryan’s decision to freeze assets.
“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,” he said.
The immediate asset freezing sees JUMP! founder and chief executive Ian Campbell now living on $2000 a week.
In a further development, Justice O’Bryan heard evidence that JUMP! received “many millions of dollars” in franchise fees over a two-year period. However financial statements reveal the assets held by the business are “relatively modest”.
JUMP! Swim Schools future
While the latest announcement is yet another setback for the embattled brand, a larger legal battle is likely looming overhead.
Robert Toth, partner at Marsh & Maher Richmond Bennison said these kinds of rulings were generally the pre-empting of a larger scale legal proceeding.
“This is all part of the process of seeking an injunction and substantive preceding,” Toth said. “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! Swim Schools and Ian Campbell, the return date sees an opportunity to consent or establish a case to fight proceedings.
“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,” Toth said.
“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.”
While many JUMP! Swim Schools franchisees, including Northern Beaches man Sean Trumbull will see the decision as a significant step forward, Toth reiterates that this is just the initial step in a larger movement.
“What the ACCC has done is met the arguable case threshold judging by the reasonable case evidence. They haven’t proven misleading or deceptive behaviour yet, but with this form of injunction, they don’t have to.”
A return date has been set for June 20.