Evidence of financial mismanagement comes to light in legal tussle involving leading prepared water business

“We hope that the evidence we’ve uncovered will lead to accountability and justice in the end.” Alfred Challis, CEO of MANZI Water

News Release
Immediate Release
27 January 2025

Developments in a legal battle currently unfolding in the prepared water business have taken a new, and shocking turn. An article run by Business Report late last year, entitled Legal battle brews in SA’s bottled water industry, details the story of a group of former franchisees of the largest purified water franchise in South Africa, who have taken a stand against the company, citing a series of practices that they allege to be unjust. These allegations on the part of the franchisees led to the abrupt termination of their franchise agreements and the establishment of an independent brand; MANZI Water.

The conflict between the franchisees and the franchisor began when a series of actions were perceived as breaches of their franchise agreements. These actions included the unilateral imposition of new business strategies that directly contradicted the terms of their existing agreements, the acquisition of competing businesses, and the implementation of a so-called “land grab” strategy, which pressured franchisees to either expand unsustainably, acquire competing stores, or face the threat of non-renewal or termination of their agreements.

In response to these breaches, some franchisees sought to address their concerns through dialogue, but their efforts were met with resistance, culminating in the abrupt and unjust termination of their franchise agreements. In short; they were shut out, and shut down.

Refusing to be bullied into submission, the franchisees decided to chart their own course, free from the overbearing control of the former franchisor. By establishing their independent venture they are reclaiming their autonomy and reaffirming their commitment to ethical business practices and community-driven growth.

Financial Mismanagement Uncovered:

At the outset of the dispute, the former franchisees alleged that the franchisor in question repeatedly failed to fulfil its obligations under the franchise agreements. This included serious concerns about the mismanagement of the marketing fund and the imposition of unauthorised expenses.

Evidence supporting this claim about the mismanagement of the marketing fund has since come to light. After having made repeated requests to the franchisor to provide bank statements that could illustrate what the funds in the marketing fund were spent on, the franchisor failed to supply the bank statements in question.

Left with no choice, the former franchisees issued a Subpoena Duces Tecum to Standard Bank to obtain detailed bank statements tied to the fund. Key revelations from these statements include:

Mismanagement of Funds:
The Marketing Fund was not used exclusively for marketing purposes, as mandated by the Consumer Protection Act (CPA).
Significant loans were made to associated companies, including entities related to the Franchisor.
Payments for general salaries and unrelated operational expenses were drawn from the fund.
Expenditures on creditors, suppliers, and technical departments fell outside the scope of a Marketing Fund.

Gaps in Transactions:
There were significant periods where no marketing contributions were deposited or transferred into the designated account, including stretches of up to seven months.

Shell Account Allegations:
The bank account appears to have functioned as a shell account, with limited transactional activity and selective lump-sum transfers, undermining its claimed purpose.
Compliance with the CPA

These findings highlight glaring non-compliance with CPA regulations, specifically:
Marketing Fund monies were not deposited into a separate, dedicated account.
The funds were used for purposes unrelated to marketing, contrary to statutory requirements.
Financial summaries provided to Franchisees did not fairly or accurately reflect fund receipts and expenses.
Legal Escalation and Next Steps

As part of efforts to address these issues, the former franchisees have:
Requested the withdrawal of all actions against former Franchisees and a tender of costs by 14 January 2025. Regrettably, there has been no response.
Secured a hearing date at the Supreme Court of Appeal (SCA) on Tuesday, 4 March 2025. This hearing is expected to set a precedent for Franchise governance and transparency.
Implications for Franchisees and the Industry
“In our view, these revelations raise broader questions about the accountability of franchisors and the protections afforded to franchisees under South African law. We believe that there is room to establish greater equality and transparency in the franchise business space in South Africa,” said Challis.
The MANZI Water venture stands as a testament to the resilience and determination of a group of entrepreneurs, who have chosen to fight for their rights rather than capitulate to a franchisor that, in their view, has lost its way. While the road ahead may be challenging, they are confident that their business will thrive, built on a foundation of fairness, transparency, and mutual respect.

Ends

Supporting Documentation
Attached you will find some additional information that will offer some more detail around the issue, included are:
Relevant correspondence outlining the Subpoena Duces Tecum process and findings.
Summaries of the discrepancies noted in the Marketing Fund bank statements.

Media enquiries:
Anneke Burns
MANZI Water Publicist
071 423 0079
anneke@manzi.co.za

About MANZI Water
MANZI Water outlets are dedicated to providing safe, clean, affordable, and accessible drinking water to communities across South Africa, focusing on sustainability and community engagement to create a positive impact on health, wellness, and the environment.

To learn more, visit: www.manzi.co.za

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