The UK Companies Investigation Branch of the Insolvency Service has launched a full investigation into five companies that are allegedly operating fraudulent fragrance vending machines and selling them to business franchises - resulting in a court appearance.
According to the Investigation Branch, three of the companies, Chanaz Limited (formerly First For Fragrance Limited), First Install South, Fragrance International Supplies and Vendible Solutions Limited, gave false references when trying to sell vending machines that dispense miniature fragrances.
The fragrance companies proposed that they would install the machines in public places, such as pubs and restaurants. However, they allegedly gave false information regarding earning potential in a bid to encourage companies to purchase the business opportunity.
Claims have been made that the companies purposely divulged unrealistic potential earning figures to the targeted franchises that were not deemed to be 'commercially or realistically achievable' by the type of businesses they were marketing the vending ventures at.
Indeed, the companies have been accused of being in breach of the British Franchise Association code of ethics and good business practice, with potential earning figures not being based on a pilot business or actual working franchise of similar caliber.
The companies, based in Warrington and Leigh, UK, have been accused of persistently making the false claims despite being aware that the franchises were not performing at the suggested level, and in some cases failing completely to supply or erect the machines that were paid for.
Furthermore, the companies failed to comply with the Investigation Branch's investigations and resisted divulging information.
The companies, including Vendible Solutions Limited and Franchise Consultant Services Limited, who were associated with the companies but did not go into trading, will go before the high court in order to resolve the issue.
It is not the first time fragrance companies have come under fire for breaching official legislation, indeed 13 leading luxury brands were fined a total of €46.2m last year for breaching anti-competition agreements.
According to the French Competition Commission, each of the brands entered into an agreement with its distributors, ensuring that every product was retailed at a single price, eliminating any possibility of competition amongst retailers.
The biggest fines went to the three distribuotors: Marionnaud, which was fined €12.8m; Sephora, which was fined €9.4m, and Nocibe, which was fined €6.2m. The Commission said that the fines reflected the gravity of the individual businesses' involvement in the cartel.
Amongst the fragrance brands, the biggest fine went to L'Oreal, which was ordered to pay €4.2m, while Chanel and Christian Dior were ordered to pay €4.1m and €2.2m respectively, Yves Saint-Laurent €1.8m, Guerlain €1.7m and ELCO, which represents Clinique and Estee Lauder, €1.6m.
The Commission said that it found the fragrance companies had all entered into agreements with the national retail chains between 1997 and 2000 with the express purpose of putting a stop to any competition between retailers for each of the brands' products.