For some franchise systems the introduction of the Personal
Property Security Act 2009 (Cth) (PPSA) may be significant, with
specific action required to protect the franchisor's interests
or ensure franchisee compliance. For others it may ultimately prove
less critical, or even irrelevant. However we recommend that all
franchise systems carefully consider the possible application of
the PPSA, and take a conservative and long term approach to the
One of the challenges when a new regulatory regime is introduced
is anticipating all of the possible scenarios that could arise.
This is because our laws are developed and refined not just through
legislation, but by regulation, judicial determination and
administrative interpretation. It can be years before there is
certainty around the meaning of new laws, but in the meantime
businesses need to make decisions and protect their assets.
For this reason we have developed a range of PPSA solutions.
This article explores what we have called our patch solution, which
is essentially intended to protect franchise systems that have
considered their position, determined that the PPSA is unlikely to
have much application to their business, but nonetheless want to
protect themselves from the consequences of unforeseen situations
and unfavourable judicial interpretation or legislative
Essentially we recommend franchisors review their franchise
documentation and processes and take steps to ensure that:
the franchisor is permitted to register a "Security
Interest" if the franchisor determines that the franchise
agreement or a transaction in connection with or contemplated by it
constitutes or contains or may in the future constitute or contain
a Security Interest under the PPSA;
the franchisee is required to acknowledge the entitlement of
the franchisor to register any Security Interest the franchisor
has, and the value given by the franchisor for the Security
the franchisor has the right to require the franchisee to take
action, provide information, produce documents and sign or obtain
any documents or consents or do other necessary things to ensure
each Security Interest is registered, enforceable and is effective
to give the franchisor the desired protection, priority or
the franchisor has the right to insist on strict compliance
with the requirements of any notice issued under the PPSA at the
cost and expense of the franchisee, and the franchisor is
indemnified for any cost the franchisor incurs in registering,
maintaining, discharging and/or enforcing a Security Interest or
doing any other thing the franchisee is required to do in
connection with a Security Interest held by the franchisor;
the franchisor has the right to obtain prompt notification of
any change to information that the franchisee provides to the
franchisor in relation to a Security Interest, including any change
that would require a Financing Change Statement to be lodged;
any non-mandatory obligations imposed on the franchisor under
the PPSA are waived.
We will be producing a range of further materials as we complete
our reviews of client documentation, including a comprehensive
article on how the PPSA is likely to affect franchise systems.
Clauses such as guarantee clauses, options to purchase, equipment
rental provisions and charging provisions are among the areas that
have been identified.
For further information contact any member of our franchising
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.
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