Australia Considers Amending Franchise Disclosure Requirements

This posting was written by Pete Reap, editor of CCH Business Franchise Guide.

The Australian Federal Government has largely agreed with recommendations of a committee reviewing the disclosure requirements of the Australia Franchising Code of Conduct and is expected to draft amendments to the Code that could be implemented by July 1, 2007, according to an article published in the April 20 issue of the CCH Business Franchise Guide.

The article—by Peter Buberis, DLA Phillips Fox of Adelaide, Australia, and Judith Miller, DLA Phillips Fox of Sydney, Australia—appears at CCH Business Franchise Guide ¶7393.

On June 28, 2006, the Federal Government initiated a review of the disclosure provisions of the Franchising Code of Conduct. The Government appointed a Franchising Review Committee to consult with interested stakeholders and issue recommendations.

After receiving 75 submissions and consulting with the Australian Competition and Consumer Commission, franchisors and franchisees, and state and territorial government entities, the Committee issued a report in late 2006. The Committee’s recommendations included the following:

Disclosing full text of agreements. While the Code currently requires franchisors to provide prospective franchisees with a summary of conditions of the franchise agreement and any other required agreements, the Committee recommended that franchisors provide the full text of such documents. Receiving such documents would allow the prospective franchisee to seek professional advice about the documents and their ramifications. The government agreed, but indicated that related documents could be provided as they become available rather than with the disclosure document.

Registration and annual filings. The Committee recommended that the government require registration of the franchise offering and the annual filing of disclosure documents and other prescribed information with the Australian Competition and Consumer Commission (ACCC). The government disagreed with the recommendation, observing that registration (1) could be seen as adding credibility to franchisor claims and (2) would place an undue compliance burden on franchisors.

Risk statement. The Committee recommended that a franchisor provide a statement of significant risks about termination or nonrenewal of the franchise, franchisor failure, unilateral franchisor termination rights, and unilateral franchisor changes to the franchise agreement. The government disagreed that the risk statement should be provided, but agreed to ask the ACCC to include references to risks in its educational materials on franchising.

Rebates to franchisors. The current Code requires franchisors to disclose whether they or an association will receive a rebate or financial benefit from a franchise sale. The Committee recommended that the disclosure should include the amounts of such rebate or benefit. The government agreed.

Franchisee history. The Committee recommended that franchisors should be required to assist prospective franchisees to obtain information regarding past franchisees which have transferred, ceased to operate, been terminated or not renewed, or bought back by the franchisor. The government agreed.

Single franchise exception. Currently, the Code does not apply to a franchise agreement offered by a franchisor located outside the country that grants only one franchise or master franchise for operation in Australia. The Committee recommended that such a franchise agreement should be subject to the same requirements as other franchise agreements. The government agreed.