The embattled owner of Gloria Jeans, Brumby's Bakeries and Donut King franchises could face a class action from disgruntled franchisees.
Bannister Law has expanded its investigation into Retail Food Group's operations to include a possible class action by franchisees.
The law firm instigated an investigation into a shareholder class action against RFG last year after the company's share price fell on fresh guidance the groups profits would be lower than expected for the first half of 2018.
This year the company again lowered its profit guidance.
RFG's shares closed down 5 per cent to $2.07 on Friday.
A Fairfax Media investigation in December found hundreds of franchisees from within RFG's network of brands were going to the wall.
It found that RFG charges its franchisees crippling fees and was driving its stable of brands that also includes Michel's Patisserie, Crust Pizza and Pizza Capers into the ground.
The investigation also found underpayment was rife within RFG's network of stores due to so many being loss-making and franchisees struggling to keep up.
Bannister's investigation will include concerns raised by franchisees in the media reports including whether the disclosures and representations made to incoming franchisees were adequate. This will include representations made about the terms of operation, and contributions made by franchisees including marketing fees.
"Accounts by many franchisees suggest that some franchisees may have been forced into severe financial hardship," said Bannister Law principal Charles Bannister.
"Many have been left devastated – financially and personally."
Bannister Law is working with franchisees and consultancy and research group Franchise Redress to investigate the potential of a class action or other action on franchisees' behalf.
Many have been left devastated – financially and personally.Bannister Law principal Charles Bannister.
Franchise Redress spent 30 days on the road from October 25 this year monitoring the RFG network of brands and visiting more than 100 stores in Victoria, NSW and Queensland. It's report on the research project found that financial distress was rife among RFG's franchisees.
The research firm said it would come on as a consultant if the class action is successfully lodged.
Franchise Redress co-founder Maddison Johnstone said the group had heard from more than 100 franchisees and many had raised concerns about RFG's conduct.
"They allege issues around the company's goodwill, the viability of stores at sale and the lack of appropriate disclosure on a range of matters including the prior performance of stores at purchase," Ms Johnstone said.
RFG has appointed Deloitte to review all of its Australian operations, including underpayment of staff employed by its network of franchisees.
RFG said in a statement that if a class action was to proceed it would defend it vigorously.
"As Australia's largest multi-brand retail food franchisor, we are proud to support numerous small businesses across Australia," the company said.
"We remain committed to the livelihood and profitability of each and every one of our franchise partners."