CODE CHANGES & REMINDERS – WITH A BITE!

With the recent further changes to the Franchising Code of Conduct (Code), and in particular the increase in penalties effective 15 April 2022, it is very important to ensure that you are aware of and meeting your Code obligations, keep evidence to back this up, and in a number of instances, this also requires strict timeframes to be met.

A number of penalties have doubled from $66,600 per breach to $133,200 per breach, a number of provisions now have a penalty provision, and some penalties have even gone up to $10 million plus.

While there are a number of obligations throughout the Code (existing and new) you need to be aware of and meeting both prior during and after any franchise relationship, we are going to take this opportunity to note just a few of the matters to be kept in mind, and recommend you do a review of your processes and documents to ensure you are fully aware and compliant.

1.     The government’s required Information Sheet must now be provided as soon as possible but within 7 days of a potential franchisee expressing interest.

2.     The Key Fact Statement should be checked each time before issuing with disclosure, to ensure that the details are correct for the relevant franchise being disclosed. You may need to update before providing.

3.     Obligations to maintain, update and provide the Disclosure Document and relevant associated documents, (with increased obligations around leases held by the franchisor or it’s related entity) need to be strictly complied with.

4.     It’s important to ensure your Disclosure Pack includes an updated current Disclosure Document with the last Code changes, the new Code (see below) and all the various relevant attachments per the Code.

5.     It should be noted that unfortunately not all the various amendments have been compiled into the Code document, so you should be using the new Form 7 Compilation when issuing disclosure. We are expecting a new Compilation 8 shortly to be released.

6.     Make sure you are aware of the Clause 17 Code ongoing disclosure matters that require you within 14 days to provide notifications to franchisees when any of the clause 17 specific events or changes happen. These generally relating to financial details and/or changes in materially relevant facts that are not otherwise contained in the disclosure document.  These obligations have been in place for many years but you could now be looking at up to a $10 million dollar penalty for companies and $500,000 for individuals.

7.     Ensure you are aware of the updated 14 day cooling off period and the extended circumstances it will now operate to cover new franchise grants and sales of franchises. This will also have a flow on impact for the sales process and timeframes.

8.     Where you have a marketing fund, while there are no new changes, there is even more incentive to get it all right and done on time, or face increased penalties.

9.     Make sure you are not engaging in conduct that would restrict or impair a franchisee/prospective franchisee’s ability to form an association or associate with other franchisee/prospective franchisees for a lawful purpose. Again this is another potentially $10 million plus penalty.

10.  Clarifications and/or new arrangements around restrictions on ability to revoke consent on any proposed sale, ability to terminate and/or deal with a request to terminate.

11.  If you are a motor vehicle dealership then there are additional obligations/restrictions to be aware of (in particular around termination and compensation rights and entitlements).

We also note that the Franchise Disclosure Register administered by the Australian Government’s Treasury Department is now open to franchisors to set up their profile and add the required information, but you have until 14 November 2022 to do this. From the 15th of November others can publicly search this. There is still debate around what extra information or documents you may want to (or potentially be required to upload i.e. Key Fact Statement, Disclosure Document, Franchise Agreement) but at the moment all that needs to be done is set up the profile and provide relatively basic franchise information.

Again, these are just a few points to note and are not complete. It is important to make sure you are aware of all your obligations relevant to your specific operations and put the systems and processes in place to ensure you meet them, and when required can prove them.

If you have any questions or want to ensure your business and you are prepared and protected, then get in contact now for a no obligation Discovery Call.

Please note that this Update is a general and brief update, it does not purport to be comprehensive legal advice of all information and/or relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.