The ACCC has consistently stated that Franchisors cannot circumvent the Code by simply claiming that the agreement is not a franchise agreement. It took action recently against Australian Loans Management (ALM) in connection with ALM's entry into separate "licence agreements" with 3 parties for a finance broking business called Active Money.

ALM did not provide the disclosure document or otherwise comply with the Franchising Code of Conduct (the Code). ALM described the agreements as "Licence Agreements", and published an "Information Document" to accompany the Licence Agreements which stated:

Not a franchise, a licensing agreement
This is not a franchise agreement. You hold an exclusive license to operate the systems, facilities and branding of Active Money in your designated area which is renewable each five years.

The ACCC considered that the ALM licence agreements constituted franchise agreements, as all elements of the definition of a franchise agreement were satisfied notwithstanding that the arrangement was described as a licence. ALM was unable to convince the ACCC that the arrangement did not have all of the salient features of a franchise. ALM also ultimately conceded that its statement in the Information Document potentially misled franchisees into believing that they were not entitled to the rights and remedies afforded by the Code.

ALM and Active Money entered into a written undertaking to ensure future compliance with the Code, including providing existing franchisees with a copy of the Code, a disclosure document and a proposed franchise agreement that complies with the Code. However ALM and Active Money were also required as part of the undertaking to:

  • provide existing franchisees with the opportunity to rescind their existing licence agreement and obtain a full refund of all monies paid to ALM; and
  • implement a Trade Practices Compliance Program for the directors and employees of the business to minimize the risk of future breaches of the Code.

For those experienced in franchising this case will come as no surprise. However it does indicate that some business people and their advisors remain unaware of the breadth of the definition of a franchise agreement, which extends beyond pure business format franchising into licensing and distribution agreements that satisfy the definition, irrespective of their description. The case also confirms the determination of the ACCC to ensure that any arrangement that is marketed or structured as a franchise is regulated by 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.