Recently there has been a significant amount of publicity concerning the Mathews Committee Review of the disclosure provisions of the Franchising Code of Conduct ("the Code").
It has been widely reported that the Federal Government has accepted most of the recommendations of the Matthews Committee. These are summarised below.
As a consequence Franchisors can expect that the Franchising Code of Conduct and the unconscionable conduct provisions of the Trade Practices Act ("the TPA") will be amended.
In our discussions with the Office of Small Business we have been advised that these amendments are unlikely to take effect until the next financial year. We are monitoring the publication of the proposed amendments to the Code and the TPA and, once the precise nature of the changes is known, we will conduct an information seminar for Franchisors to outline, discuss and examine the proposed amendments and provide tips and guidance as to how Franchisors will need to amend their Disclosure Document and methods of doing business.
The major changes to disclosure obligations in the Code anticipated as a result of the Federal Government's acceptance of the Mathews Committee recommendations are as follows:
1. Franchisors will be required to provide Franchisees at the time they give the Disclosure Document, a copy of the
Franchise Agreement in the form in which it is intended to be executed.
2. In addition, Franchisors will also be required to provide Franchisees with copies of any other documents that Franchisees may be required to sign as part of the franchise acquisition process at least 14 days prior to the date upon which they will be required to sign those documents.
3. Franchisors will be required to disclose to Franchisees any undertakings they have given under Sections 87B of the TPA within 14 days of giving such undertakings.
4. The obligation to disclose that a Franchisor might be receiving rebates or other financial benefits from suppliers and other persons will be extended so as to require Franchisors to disclose the amounts or methods of calculation of rebates or other financial benefits.
5. The auditing of marketing statements will now become mandatory - the ability to opt out if 75% of Franchisees voted in favour of so doing has been removed.
6. Subject to compliance with Privacy Laws, disclosure will be required of the names, location and contact details of past Franchisees that have been terminated or who have transferred their franchise or have otherwise exited the system.
7. The obligation to make ongoing disclosure of material relevant facts has been tightened so that disclosure must be now made within 14 days of the happening of the relevant facts.
8. The single foreign franchise exemption from the operation of the Code has now been removed.
9. The financial disclosure obligations relating to the Franchisor are now extended to the consolidated entity of which the Franchisor is a member.
10. Disclosure will now be required of any past relevant history of the site to be franchised; such disclosure to be provided at the time the Disclosure Document is provided.
The unconscionable conduct provisions of the TPA will be amended so as to add to the relevant indicia of unconscionable conduct, the enforcement of a contractual right to unilaterally vary the terms of the contract and the enforcement of a contractual right to terminate a Franchise Agreement without cause.
The above is only a brief summary and it is our view that until the precise details of the proposed amendment to the Code and the TPA have been published, Franchisors need not panic or make any substantial changes to the manner in which they conduct their business or the terms of their Disclosure Document. Franchisors may however wish to amend their Disclosure Document to take into account the proposed changes, but those who do so, will need to bear in mind that further changes might be required once the precise terms of the amending Code and TPA have been released.
This article appears courtesy of
Mason Sier Turnbull,
franchise lawyers.
3-Oct-2007