Psychologists financially ruined after joining failed counselling franchise


July 23, 2019 10: 49: 48

As a psychologist, Nihal Kucuk has actually invested the last 16 years assisting customers get rid of tension, now the Gold Coast professional is the one under massive pressure.

She now is at threat of losing her home as an outcome of a failed company endeavor.

3 years earlier, Ms Kucuk obtained more than $260,000 to sign up with a psychology franchise called Life Resolutions.

In order to get approval for the loan, she needed to stump up her household house as security — a choice she thinks about to be her “biggest regret”.

“I haven’t received a single dollar from Life Resolutions — zero,” Ms Kucuk stated.

As an outcome, she has actually been not able to make loan payments for 2 years and has actually just recently been threatened with financial obligation healing action by the lending institution.

A psychology franchise

Consider franchises and Domino’s, 7-Eleven and junk food may right away come to mind — however most likely not psychology centers.

In the previous years, lots of psychological health professionals throughout Australia registered to Life Resolutions with high hopes.

Nevertheless, the ABC has actually talked to 31 unhappy psychologists who either claim to have actually been misguided, or to have actually left business financially worse-off.

Just 2 psychologists the ABC spoke with explained their experience as “good”, stating they left the franchise in much better monetary shape than when they participated in the plan.

2 Melbourne-based ladies, Mary Magalotti and Jodie Brenton, established Life Resolutions in 2001. Ms Magalotti was a high-ranking executive of the Australian Mental Society and Ms Brenton has a background in advertising and marketing.

The set offered potential franchisees a dream: “success without the stress”.

All the marketing, marketing, customer recommendations and reservations would be managed by head workplace. The professionals simply needed to do what they do best, and see the money roll in.

However the dream rapidly unwinded. Numerous psychologists who had actually obtained greatly to purchase in discovered they were not able to make enough to repay their financial obligation.

They declare the head business charged expensive charges, failed to provide customers in adequate numbers, and was tardy in paying franchisees for customers they had actually counselled.

They state their experience was at chances with the vibrant guarantees that have actually appeared on Life Resolutions site — consisting of a “100 per cent success rate”, “guaranteed” minimum earnings of $120,000 throughout the very first year, “extensive” assistance and “ongoing new clients” — that tempted them in.

In Ms Kucuk’s case, she registered to be a master franchisor or “area representative”, which needed her to offer as lots of franchises as possible to other psychologists. For each brand-new hire, she would make $55,000.

When asked why she registered as an “area representative”, she stated it was due to the fact that Ms Magalotti had actually assured she would “definitely” be making enough to pay back the substantial loan “within a really short amount of time”.

In Ms Kucuk’s agreement, the business even ensured she would get a complete refund if she failed to offer 2 Life Resolutions franchises, worth an overall of $110,000, to other psychologists in her very first year.

‘The cash you invested is gone’

On October 12 in 2015, Ms Kucuk got a voicemail from Ms Magalotti.

“Nihal … Life Resolutions Australia Pty Ltd [LRA] has actually entered into liquidation today,” Ms Magalotti stated.

“Our arrangement is for that reason null and void and the cash you invested is gone.

“The Life Resolutions brand name … we’re still going to utilize that brand name, however in a various entity.

“We’re setting [new] practices up for ourselves … company-owned practices.

“I do not dislike you, and I hope you do not dislike me. Things didn’t exercise as we both prepared.”

The business behind the psychology franchise — LRA and Life Resolutions Pty Ltd (LR) — entered into liquidation, in early October.

Liquidation timeline:

  • August 30, 2018: Ms Brenton develops brand-new business Here to Assist Pty Ltd (HTH) and Excellent to Listen (GTL)
  • August 31: Ms Magalotti resigns as director of old business (LR and LRA), leaving Ms Brenton as sole director
  • September 10: LR and LRA go into “sale of asset agreement” with brand-new business (HTH) moving properties worth $125,000 and protected financial obligation owed to banks and lending institutions amounting to $301,000
  • September (throughout): Ms Brenton notifies franchisees their franchise contracts with LRA will be moved to GTL
  • October 4: LRA enters into liquidation, designating Mackay Goodwin (Mackay) as liquidator
  • October 9: LR enters into liquidation, designating Courtney Jones & Associates (CJA) as liquidator
  • November 22: Mackay recommends that LRA owes $2.3 million to more than 40 lenders
  • December 7: CJA reports LR might have traded insolvent because June 30, 2017
  • January 4, 2019: Mackay reports LRA likewise might have participated in insolvent trading
  • March 20: LR is deregistered — without any properties, and no dividends payable to any lenders

Source: ASIC searches, liquidator’s reports and ex-franchisees

In Between them, they owe more than $2.2 million to the Australian Tax Workplace (ATO), a number of significant banks and a long list of psychologists.

The greatest lenders are the Mary Magalotti Trust ($1.17m), ATO ($280,000) and Melbourne-based Individuals Psychology ($191,000).

The “different entity” Ms Magalotti pointed out in her voicemail is called Here to Assist Pty Ltd (HTH) — among a number of business produced by her company partner Ms Brenton, a number of weeks previously, on August 30.

On September 10, practically a month prior to the voicemail, Ms Brenton offered $125,000 worth of LR’s and LRA’s properties — like workplace devices, furnishings and a Volvo XC60 automobile — to her brand-new business.

In exchange, the brand-new business presumed $300,000 worth of financial obligation. However it just handled the protected financial obligation that was owed to the banks.

The unsecured financial obligation, worth around $2 million and that included the cash owed to the psychologists, was entrusted to the old business, LRA, which was taken into liquidation later on.

Ms Brenton likewise produced a business called Excellent to Listen Pty Ltd (GTL) in late August.

In the weeks leading up the liquidation, she moved Life Resolutions’ most important properties to GTL — its franchise contracts with all the psychologist franchisees.

The brand-new business (HTH and GTL) now run the Life Resolutions franchise company.

Ms Magalotti resigned as a director of Life Resolutions simply a month prior to it collapsed, however still plays an active function recruiting psychologists for the brand-new business.

‘Obvious’ the business was having a hard time

Life Resolutions’ previous basic supervisor Alistair Method is extremely vital about his ex-employer’s conduct.

“It was no secret the business was struggling to meet its financial obligations,” he stated.

“Personally, I don’t think any business should be able to dump that much money, slide straight into a new shell, and continue like nothing has happened or to hide it under the guise of a ‘normal’ restructure.”

Mr Method, who handled the franchise in 2016–2017, stated he left the business due to the fact that he was dissatisfied with its “chaotic” environment, “running from fire to fire”.

Life Resolutions made much of its earnings from franchisee sign-up charges — $260,000 for master franchisors, and $55,000 for franchisees.

It likewise charged up to 17 percent commission from every counselling session and $357.50 for each 5 hours of “marketing effort”.

The group targeted rewarding Staff member Support Programs; personnel counselling services supplied to a few of the greatest companies throughout the country.

The franchisees were basically sub-contractors, making $88 per counselling session for which they billed the head business, Life Resolutions.

In the months leading up to its liquidation, with its monetary position degrading, Life Resolutions was gathering money from customers, however not passing it on to the psychologists.

According to court files, among the ex-franchisees, psychologist Heidi Smith, was owed about $10,000, which she states related to more than 110 hours of counselling work over 6 months.

Ms Smith took legal action against Life Resolutions and was granted complete payment in a default judgment, after Life Resolutions failed to go to court.

‘Deceptive or misleading’

Ms Kucuk is not the only master franchisor who blames Life Resolutions for her alarming monetary scenario.

Psychologist June Staunton, 70, is likewise at threat of losing her house, after obtaining $260,000 to buy the psychology franchise and utilizing her Queanbeyan home as security.

She has actually likewise been not able to pay back business loan, and is presently protecting a financial obligation healing claim lodged by her company lending institution.

Ms Staunton is even taking legal action against Ms Magalotti and LRA in the Supreme Court of NSW, for “misleading or deceptive conduct”.

She argues in her declaration of claim that she was caused to sign up with the franchise as an outcome of Ms Magalotti’s incorrect claims.

It is declared among Ms Magalotti’s claims was: “You would quickly have the ability to hire 6 company partners [franchisees] in a year [worth $330,000], therefore would have the ability to settle the proposed loan in 2 years.”

According to Ms Staunton, another of Ms Magalotti’s supposed guarantees was that various psychologists in south-eastern NSW were currently “waiting” to be called by Ms Staunton about being registered.

Ms Magalotti and LRA have actually submitted a defence rejecting all of those accusations, arguing that Ms Staunton’s monetary issues were an outcome of her “inactivity” and failure to “take up assistance” from Ms Magalotti.

They likewise declare the psychologist’s failure was because of her being “distracted” and “impacted” by “various personal and legal matters”.

In Addition, Ms Brenton and Ms Magalotti informed the ABC in a declaration: “It is simply untrue that people were misled or deceived. No level of income was guaranteed.”

Nevertheless, the Life Resolutions site informs a various story. An area called Earnings Warranty guarantees franchisees they will make a minimum of $85,000 in their very first 12 months.

This is a considerable drop from the $120,000 minimum earnings the franchise utilized to ensure almost a years earlier.

“Also, no guarantees were ever made in relation to [the] variety of customers [psychologists] would get,” the co-founders stated.

‘Might have traded while insolvent’

Ms Brenton and the old Life Resolutions business (LR and LRA) might have broken the law, according to their liquidators.

“My preliminary view is that the company may have traded while insolvent,” liquidator Matthew Gollant of Courtney Jones & Associates composed in his report to LR lenders.

The ABC has actually validated with Mr Gollant that this was his last position, which LR remained in a “negative net asset position” because June 30, 2017.

On The Other Hand, the other liquidator, Domenic Calabretta of Mackay Goodwin, composed to LRA lenders: “A claim might be offered versus the director for breaches of the insolvent trading arrangements of the [Corporations] Act.”

Under the law, directors cannot handle additional liabilities if they are not able to pay current financial obligations.

However provided the expenses of pursing the matter through the courts (as much as $20,000 to begin), Mr Gollant thinks a case would not deserve it.

“I regrettably advise that a dividend will not be paid to any class of creditor, given the lack of funding to take recovery action,” he stated.

In a declaration, the Life Resolution’s co-founders stated: “The liquidation was not a deliberate attempt to burn people, but instead a restructure to protect franchisees who then chose to breach their franchise agreements and not to stay with us.”

Still hiring, in spite of the liquidation

Brisbane psychologist Coral Palmer stated she was “outraged” when in late November, among the business attempted to hire her unskilled psychology intern as an “area representative”.

Ms Palmer was not a franchisee, however LRA owes her $11,000 for more than 100 hours of counselling she carried out on its behalf through a Worker Support Program.

In an e-mail sent out almost 2 months after the liquidation, Ms Magalotti utilized the very same sales pitch as previously.

The intern might make big quantities of money for each psychologist she hired. All she needed to do was stump up a $275,000 joining cost.

“Clearly if we were to collaborate together, all of our IP [intellectual property] would be shown you and other chances would undoubtedly unfold,” Ms Magalotti composed in the e-mail.

Having actually been scorched herself, Ms Palmer was stunned by the audacity of the deal.

“Apparently they have no loan and here they are making this type of deal to [the intern],” she stated.

In a declaration, Ms Magalotti and Ms Brenton stated Life Resolutions’ company was to “recruit to grow its network to then be able to provide mental health services to the general public”.

Franchisees have actually lodged grievances with the Australian Securities and Investments Commission (ASIC) however it has actually decreased to act, an action one psychologist referred to as “fairly pathetic”.

When asked to review her time with Life Resolutions, Ms Kucuk used a scathing evaluation.

“My time with Life Resolutions I could describe as a complete waste of time, effort and money,” she stated.

“It’s definitely not something that I would ever consider doing again.”







First published

July 23, 2019 05: 03: 59

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About the Author: Dr. James Goodall

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