Amway tells court of company overhaul after wind-up claim

Times Online, UK/November 29, 2007

The group told the Companies Court yesterday that the changes were part of a global review of its business, which has a sales force of three million in 80 countries and a turnover of $6.4 billion (£3.2 billion).

David Chivers, QC, on behalf of the company, said yesterday that Amway was a lawful multilevel marketing group and not an illegal "snowballing" or "money circulation" scheme that relied solely on funds from its members. "In a multilevel marketing scheme, the promoter is providing a good for sale and paying money to the participants who themselves, or down-line, have effected a sale," he said.

The Government investigation claims to have shown that only 10 per cent of Amway’s agents make any profit and only 6 per cent sell a single item of the group’s products. It claims that the company overstates potential earnings and that its main activity is encouraging agents to recruit other people to its sales force.

Mr Chivers told the court that Amway favoured publishing the earnings of its members and had given an assurance to the court and the Government that it would not recruit any further agents until its earnings data are published. Amway’s own rules say that promotional material should state that income can only be achieved by the sale of products to end clients and that the company does not pay simply for recruiting further agents, Mr Chivers said. They also state that spending on training material should be a reasonable proportion of the agent’s sales.

If potential recruits had been provided misleading information by a "sponsoring" organisation, they would also have received Amway documents containing statutory warnings "which make it absolutely clear that this is a business where, if you are to succeed, you have to work hard", he said.

Mr Chivers told Mr Justice Norris that the court must consider whether the company was acting in the public interest, using its new business model. "The changes do not simply involve the business model. There are changes to the management and changes to deal with earlier perceived weaknesses," Mr Chivers told the court.

When Amway ends its self-imposed moratorium on recruitment, it will scrap its joining fee and ban new agents them from recruiting "down-line" members until they have made sales above £200 in 12 months and have five customers, Mr Chivers said.

The British subsidiary of one of the world’s biggest marketing groups has replaced its senior management and substantially altered its business model after being accused of operating against the public interest, a court was told yesterday.

Amway, which had 39,000 selling agents in Britain during 2005-06, is defending itself against an application to wind up the company by John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform. It has been accused by the Government of being "inherently objectionable", of operating as a "lottery" and of trading unlawfully. The court has been told its promises of wealth are "illusionary" and amount to "dream-selling".

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