As previously set out in our Commercial Matters Blog, the enactment of The Treasury Laws Amendment (2021 Measures No.6) Act 2021 saw the increase of the maximum penalty for breaching the Franchising Code to $10 million in an effort to restore confidence in the franchising sector. More recently, there have been further attempts to facilitate greater transparency and fairer dealings in the industry. On 30 September 2021, the federal government released draft amendments to the Franchising Code of Conduct which will see the implementation of The Competition and Consumer (Industry Codes—Franchising) Amendment (Franchise Disclosure Register) Regulations 2021, due to commence on 31 March 2022. The amendments are reflective of the 2021-22 budget proposal to commit to $4.3 million for a new Franchise Disclosure Register which will aim to better facilitate prospective franchisees in conducting due diligence and making informed business decisions.
Schedule 1 to the Regulations amends the Competition and Consumer (Industry Codes— Franchising) Regulation 2014 to insert Part 5A to establish the Franchise Disclosure Register.
The Franchising Disclosure Register
Clause 53 of the Regulations establishes a Franchise Disclosure Register which will be freely accessible to the public via an online portal. The explanatory draft sets out that an administrative responsibility will be conferred on the Secretary in relation to upholding the maintenance of the online register. This is indicative of an effort to impose additional administrative obligations on Franchisors to maximise transparency and ensure the display of accurate disclosures of business information, in an effort to further protect Franchisees. Franchisors are expected to play an active role in providing documentation required under Division 2 of the regulations for inclusion in the register. These documents include:
- A Disclosure Document
Under the regulations, all existing franchisors are under the obligation to provide a disclosure document to be uploaded on the register. Franchisors must ensure their disclosure document is updated up to 30 June 2022 or alternatively provide their most recently updated disclosure document for inclusion in the Register before November 2022. Annexure 1 of the Code remains to prescribe all necessary information that must be included in a disclosure document for pre-existing and prospective franchisees. Franchisors must also take necessary precautions and redact inadmissible information such as personal information in deference to the Privacy Act and commercially sensitive information regarding rebates, before uploading disclosure documents on to the portal.
- Identifying Business Information
In addition to the disclosure document, the Clause 53A stipulates that franchisors are to provide certain identifying business information, to appear on the businesses profile page. Specifically, the name of the franchisor and the name under which a franchise system trades in Australia are essential in order to increase the functionality of the register and allow users to easily identify Franchises. In addition, the publication of ANZSIC industry classification information will be necessary to both assist in the identification of franchises and allow for searches to be sorted by sector. These provisions enhance the accessibility of important information through the Register.
- Other Information and documents that a franchisor may choose to provide for inclusion
Franchisors also have the flexibility to elect to publish any further information they see necessary for Franchisees to access when undertaking their due diligence. For example, franchisors may wish to include on the portal a brief description of their business and their contact details so prospective franchisees are informed as to how to get in touch with an organisation to discuss franchising opportunities.
What does this mean?
The establishment and nature of the Franchise Disclosure Register is demonstrative of an effort to restore the confidence in the franchising sector through improved accessibility to information, encouraging credible disclosure practices and equipping franchisees with the necessary tools to compare information. The Register will also operate alongside pre-existing disclosure requirements and practices under the Franchising Code to deliver greater transparency across the franchising sector and support Franchisees to be well informed before entering into a binding Franchise agreement.
Compliance is regulated through the imposition of a maximum civil pecuniary penalty of 600 penalty units for those in breach of the requirements, currently equating to $133,200. The penalties apply particularly to those who fail to comply with the requirements pertaining to the provision of disclosure documentation and businesses information, both of which represent core obligations under the regulation. The effectiveness of the register framework in improving transparency and comparability is heavily contingent upon compliance and therefore the imposed penalties aim to consolidate and safeguard those core objectives.
Ongoing Franchisors Obligations
In addition to the provision of necessary documentation for inclusion to the register, the regulations stipulate further ongoing obligations for Franchisors to undertake. Clause 53D requires that franchisors annually update the information and documentation uploaded to the register. This includes franchisors updating or introducing any materially relevant facts that are not already included within the disclosure document (53E). Previously under the Franchising Code, franchisors who were not seeking to expand their franchise network were not required to update their Disclosure Documents. This provision is also encapsulated within the proposed Franchise disclosure register regulations; however, franchisors will now also be required to confirm that no update is required (53F). This provision ensures that franchisors still retain a presence on the register irrespective of whether they are seeking to enter into a franchise agreement or not.
How can we help?
If you have questions or require assistance in relation to the establishment of the Franchise Disclosure Register or your obligations under the Franchising Code, please do not hesitate to contact a member the Coleman Greig’s Commercial Advice Team who would be more than happy to assist you.
This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.