Can you believe it's the middle of August?!
We can't either! Winter is nearly over (thankfully) but also there are only two months left to update your franchise disclosure document!
Yes, for those Australian franchisors who operate on a financial year ending 30 June (most of them), the annual disclosure document countdown is nearly half over. Under the Franchising Code of Conduct, the deadline is 31 October 2018 for the new disclosure document to be completed and signed off (4 months from the end of the financial year).
The main items that need updating are:
- Addition of financial statements for last completed financial year or the independent audit report (please chase up the accountant to ensure that these will be ready in time!)
- Updating the table of transfers and terminations of franchises in the previous financial year
- Updating the list of franchisees
- Any changes in officers, directors of the franchisor or other corporate details
- Marketing fund expenditure in the previous financial year
- Solvency statement signed by the director/s
If you have a marketing fund you must also prepare the financial statements for the marketing fund and arrange their independent audit by a registered company auditor 31 October. You can avoid the audit (and that extra cost) if you conduct a vote of franchisees by 30 September and at least 75% of them agree to forgo an audit.
You must distribute the marketing fund financial statements to the franchisees within 30 days of preparing them and (if applicable) a copy of the auditor's report within 30 days of its preparation.
Failure to comply with these provisions within the time limits can result in an infringement notice from the ACCC. Just ask Domino's!
Franchise Agreement Updates
We recommend that any changes you wish to make to your standard franchise agreement be done at this time, as they may need to be reflected in the disclosure document. Many systems have already made changes to reflect the unfair contract terms legislation and the changes to the Fair Work Act but if you haven't already done so, these matters should be considered.
While the majority of franchise systems must update their disclosure document annually, you should update more frequently if any developments during the year have potentially made the document misleading. This could include events such as a significant reduction in the number of outlets or the departure of a founder or key member of management which may influence a prospective franchisee's decision. There are also certain mandated events (like the transfer of intellectual property) that require an update at the time and which must be notified to the network.
With the ongoing inquiry into the franchising sector and public attention, it is critical that franchisors comply with the Code. The inquiry has revealed that a number of franchise systems may not be in compliance with the Code, have acted unconscionably or have clauses in their franchise agreements that are potentially void for being 'unfair'. Even though it is likely that substantial regulatory changes are on the horizon, we encourage all franchisors to undertake comprehensive compliance checks as soon as possible. We have already seen the ACCC being more active this year in pursuing franchisors for breaches of the Code.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.