The Federal Government has released draft legislation to reform
insolvency laws that includes a provision that will worry many
The provisions which purport to prohibit so-called "ipso
facto" termination clauses may well be supported by insolvency
practitioners, but could well prevent franchisors from terminating
a franchise agreement in the event of a franchisee's
insolvency. The statement by the Minister for Revenue and Financial
Services Kelly O'Dwyer asserts that the legislation will make
"ipso facto clauses, which terminate or amend a contact merely
because a company has entered into a formal insolvency process,
unenforceable "1 Most franchise agreements would
have such a clause, or at least permit a franchisor to terminate
the franchise agreement in the event of insolvency.
This proposed legislation not only cuts across what franchisors
would typically regard as a critical power to preserve the
integrity of the brand and a franchise network, but seems to
expressly contradict clause 29(1)(b) of the Franchising Code of
Conduct, which permits immediate termination should a franchisee
"become bankrupt, insolvent under administration or an
externally-administered body corporate."
The draft legislation has been released for public consultation,
with submissions due by 24 April 2017.
The Government clearly anticipates some push back, as there is a
separate explanatory document setting out the types of contracts
and contractual rights to be excluded from the legislation. The
legislation provides that the Minister may declare "kinds of
contracts" that are to be excluded. The franchise sector will
be pressing hard to ensure franchise agreements are excluded, and
no doubt landlords will take a similar view. However it is by no
means certain this will occur as prior experience shows such
declarations are very difficult to obtain.
We are currently reviewing the legislation and will be involved
in industry submissions in connection with the legislation. In the
meantime if you have any queries please contact any member of our
Fair Work Franchising Amendments Referred to Committee
In a slightly more pleasing development, the Senate has referred
an inquiry into the Fair Work Amendment (Protecting Vulnerable
Workers) Bill 2017 to the Senate Education and Employment
Legislation Committee for inquiry and report by 9 May 2017.
The closing date for submissions is 6 April 2017, which is an
extremely tight time frame. A delegation from the franchise sector
is meeting with the Minister in Canberra tomorrow, and efforts are
continuing to forestall or at least moderate the compliance cost
associated with the legislation.
This article considers some of the recent tax changes that are likely to impact on franchisors and their networks.
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