Franchising - ACCC Increases Focus on Franchisor Obligations
Date: February 08, 2008
Authors: Michael Pickering B.A., LL.B. (Hons.), LL.M., M. A.
Summary
New franchising regulations will commence on 1 March 2008. Franchisors will need to comply with the current franchising code up until 1 March 2008 and then comply with the amended code afterwards.
ACCC flexes its muscles
The Australian Competition & Consumer Commission (ACCC) has decided that franchising will be a priority target during 2008. The ACCC realizes that franchises are increasing greatly and have lacked the sort of close scrutiny and supervision which they will now receive. Franchisors and franchisees can except that the ACCC will pursue breaches of both the Trade Practices Act and the Franchising Code of Conduct.
Key Changes to the Code
The recent review of the disclosure provisions of the Franchising Code of Conduct has resulted in new regulations designed to increase the transparency, quality and timeliness of disclosure to existing and prospective franchisees.
Franchisors will need to provide after 1 March 2008:
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Franchise agreements in the actual form intended to be executed. Summaries are insufficient
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Copies of documents relating to the franchise agreement such as leases, 14 days prior to execution.
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Audited financial reports upon request for consolidated entities.
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Section 87B undertakings within 14 rather than 60 days.
Foreign franchisors are no longer exempt from the application of the Code.
Franchisors must disclose after 1 March 2008:
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from whom rebates or financial benefits are received.
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Contact details of ex-franchisees.
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Business experience of all officers (not just key management staff).
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Materially relevant facts concerning directors including serious offences and contraventions of the Corporations Act within 14 rather than 60 days.
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Details of the expenses of marketing/other co-operative funds - however, 75% of franchisees may decide that annual audits not be undertaken.
General waivers regarding prior representations will not be permitted after 1 March 2008 in franchise agreements. This change is in response to the decision in Poulet v The Silverfox Company which suggested that the use of broad disclaimers in franchise sales literature could avoid liability under the Code and forced franchisees to verify information which is frequently difficult.
Another key change to be introduced after 1 March 2008 is that franchisors must not inhibit prospective franchisees from communicating with each other or with existing franchisees.
Reasonable expenses may be charged by a franchisor after 1 March 2008 if an agreement is terminated by the prospective franchisee within the cooling off period. This is provided that the expenses or their calculation have been explained in the franchise agreement.
Conclusion
The March 2008 changes will require franchisors to review and amend their Disclosure Documents and Franchise Agreements so as to comply with the new obligations. Should you need competent legal advice on any franchise matter do not hesitate to contact LAC Lawyers in either Melbourne or Sydney.
Contact us now for Fast, Accurate and Timely legal advice
Phone LAC Lawyers on NSW 1300 799 888 or VIC 1300 734 638 or send us an email
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