The most recent edition of the Franchising Code of
Conduct (Code), which was the most significant change in the
regulation of the franchising industry since the Code was first
introduced, has now been in force for a year. The first anniversary
of the Code changes marks a good time for franchisors to ensure
they are compliant with the new Code to avoid hefty
The new Code,
among other things, introduced a suite of new disclosure
requirements, the most significant of which include requirements
for franchisors to:
update their system's disclosure document to reflect the
new mandatory Code template;
provide an information sheet to prospective franchisees,
outlining the general risks and rewards of franchising;
comply with ongoing disclosure requirements around
'material matters' including those affecting franchisor as
well as any 'associates';
provide information to new franchisees regarding the online
trading activities of the franchisor; and
clarify franchisees' renewal rights, including providing a
'no renewal' statement if necessary.
Legislative amendments made in conjunction with the new Code
expose franchisors to civil penalties of up to $51,000 for
breaching any of a number of obligations under the new Code,
including the disclosure requirements set out above.
The Australian Competition and Consumer Commission also now has
the power to issue infringement notices along with fines of up to
$8,500, without applying to a court, whenever the Commission makes
an assessment that one of the civil penalty provisions has been
Why franchisors need to act now
Franchisors were given a grace period to comply with a number of
provisions in the new Code, allowing them four months after their
end of financial year (i.e. 31 October 2015 for most franchisors)
to update their disclosure documents.
As this grace period has now finished, franchisors whose
disclosure material has not been updated since the changes to the
Code now face financial penalties.
Recent cases such as SPAR Licensing Pty Ltd v MIS QLD Pty Ltd  FCAFC
50 reiterate the importance of complying with disclosure
obligations. In that case, a franchisor failed to accurately
disclose its true financial position to a franchisee. The franchise
agreement was set aside by the Court, which made its ruling before
the commencement of the new Code.
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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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The court exercised its discretion when a financier's failure to register security interests properly was inadvertent.
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