Mason Sier Turnbull franchise lawyers remind franchisors to create a disclosure document

Pursuant to the changes to the Franchising Code of Conduct, Mason Sier Turnbull franchise lawyers remind franchisors of the need to create and maintain a disclosure document in the form prescribed by the Code.

This document needs to be provided to prospective franchisees and franchisees renewing or extending the scope or term of their Franchise Agreements.

The purpose of a disclosure document is to provide a prospective or existing franchisee with sufficient information to enable them to make an informed decision about whether or not to enter into a franchise, or to renew or extend a franchise.

It will also provide franchisees with current information that is material to the operation of the franchised business.

Mason Sier Turnbull franchise lawyers note that in addition, while there is no specific requirement for a franchisor to provide a current disclosure document to existing franchisees who are not renewing or extending their franchise agreement, the document must be supplied to a franchisee within 14 days if a written request is made.

Franchisees are entitled to make such a request once within a 12 month period.

Queries from franchisors with regard to how often their disclosure document should be updated and the appropriate time to do so are often received by Mason Sier Turnbull franchise lawyers.

Pursuant to clause 6 of the Franchising Code of Conduct, a franchisor’s disclosure document must be updated within four months of the end of each financial year.

This means that the document does not need to be updated more than once a year. A disclosure document dated 31st October will be valid until 30th October the following year, hence there is no need to amend the statistical information enclosed in the document (the numbers and details of franchisees) each time there is a change in the network.

This is, of course, subject to the provisions of clause 18 of the Code. This clause lists the material facts or matters that a franchisor must inform a franchisee or prospective franchisee about in writing, within a reasonable time not exceeding 14 days after the franchisor becomes aware of the fact or matter.

These facts or matters are specifically:

• a change in the majority ownership or control of the franchisor
• a judgement against the franchisor (other than for unfair dismissal) under various provisions of the Independent Contractors Act 2006, the Industrial Relations Act 1996 (NSW) and the Industrial Relations Act 1999 (QLD)
• civil proceedings in Australia against the franchisor or a franchisor director by at least 10% or 10 of the franchisor's franchisees in Australia
• any judgement entered against the franchisor in Australia that is not discharged within 28 days for at least $100,000 for a small proprietary company or $1M for any other company
• proceedings that would otherwise need to be disclosed in Item 4 of the disclosure document
• if the franchisor becomes an externally administered body corporate
• a change in the intellectual property or ownership or control of the intellectual property which is material to the franchise system; and
• the existence and content of any undertaking or order of s87B of the Trade Practices Act 1974 (Cth).

• breach of Franchise Agreement or contravention of trade practices law
• contravention of the Corporations Act 2001
• unconscionable conduct or misconduct; or
• an offence of dishonesty.

In such cases, both the head franchisor and the master franchisee/dub-franchisor must provide the prescribed disclosure information, either by providing a joint disclosure document that addresses their respective obligations or by each issuing a separate disclosure document.

Mason Sier Turnbull franchising lawyers advise that for franchisors whose financial year ends on 30th June, their disclosure document must be updated annually by no later than the 31st October.

With changes to the Franchising Code of Conduct that came into effect on 1st July, 2010, the franchise lawyers note that additional amendments may be required this year to incorporate these changes.

Disclosure documents and franchise agreements issued on or after 1st July, 2010 must comply with the amended Code.

Franchisors are advised to take this opportunity to ensure their documents are appropriately updated.