It is that time of the year again when all franchisors
(including foreign franchisors) should be updating their Disclosure
Documents if they have not done so already. As all franchisors
should be aware, under clause 6 of the Franchising Code of
Conduct (Code) all franchisors are required
to update their Disclosure Documents within four months (previously
three months) of the end of each financial year. For most
franchisors this will mean that their Disclosure Documents should
be updated by 31 October 2008. This obligation
also applies to foreign franchisors who have granted master
franchise rights to an Australian master franchisee.
In addition, under clause 17(1)(c) of the Code, Franchisors who
operate a marketing fund, must within four months after the end of
each financial year prepare an annual financial statement detailing
all of the fund's receipts and expenses for that last financial
Clause 17(1)(c) of the Code now provides that a franchisor must
give to the franchisee a copy of the financial statement for the
marketing fund within 30 days after preparing the
statement. There is no longer a requirement for the franchisee
to request a copy of the statement. Prior to 1 March 2008,
franchisors were only required to give a copy of the financial
statement for the marketing fund to a franchisee, within 30 days
after receiving a written request from the franchisee.
The obligation for a franchisor to update its Disclosure
Document applies even if a franchisor:
is not recruiting new franchisees; and
is not requested to provide a current Disclosure Document to a
To remain compliant with the Code, all franchisors (including
foreign franchisors) must maintain a current Disclosure Document at
all times and update that Disclosure Document at the end of each
In particular, the following items of a Disclosure Document need
to be updated in respect of the last financial year, which for most
franchisors will be the financial year ended 30 June 2008:
Item 6.4 - the specified events (e.g. franchises transferred
and franchise agreements terminated) for the financial year
Item 12(h) - the marketing fund expenses for the financial year
2007/2008 including the percentages spent on production,
advertising, administration and other stated expenses;
Item 20.1 - the director's certification that as of 30 June
2008, there are reasonable grounds to believe that the franchisor
can pay its debts as and when they fall due; and
Item 20.2 & 20.3 - an independent audit report or financial
reports for the financial year ended 30 June 2008 must be annexed
to the Disclosure Document. (If no audit report is annexed to the
Disclosure Document, financial statements for the last two
completed financial years must be provided).
In addition, any other matters in the Disclosure Document that
have changed in the last financial year also need to be updated,
for example, the franchisee's details at Item 6.3 if any
franchisees have entered or left the franchise system during that
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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