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EOFY Franchisor Obligations

July 16, 2017

By Angela Szczepanski and Sid Sidhu

With the new financial year in full swing, franchisors are reminded not to forget their end of year obligations under the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (‘Franchising Code’). This article focuses particularly on the obligation to update your disclosure document and to provide vital information to franchisees regarding your marketing fund.

Disclosure documents must be updated

Under the Franchising Code, franchisors must create a disclosure document containing all relevant information for the purposes of providing prospective and current franchisees with information necessary to make an informed decision. This document must meet the specific requirements set out in section 8 of the Franchising Code.

The start of a new financial year presents the perfect opportunity for franchisors to update their disclosure document and summarise any key changes that have occurred during the last financial year. This may include, for example, changes in staff, any litigation that has commenced or finished and changes to intellectual property. Financial details (including a statement of solvency by the franchisor’s directors) should also be updated, as well as the details of existing franchisees and those who have left the system within the last three years. Documents which go to support any claims made in the disclosure document must be kept for at least six years.

Franchisors who run their business on the standard financial year will have until 31 October to update this document. All other franchisors who operate on a different timeline must fulfil these obligations within 4 months of the end of their financial year.

Please note, an update will not be required if the franchisor has entered into only one franchise agreement (or none) during the last financial year, and does not intend to enter into another during the new financial year.

Marketing fund documents

Where franchisees are required to make contributions to a marketing or other cooperative fund, franchisors must prepare a financial statement that complies with section 15 of the Franchising Code. Importantly, it must include meaningful information about sources of income and items of expenditure for the past financial year. It must also be audited by a registered company auditor within four months of the end of the franchisor’s financial year. Franchisees are entitled to receive a copy of this statement and auditor’s report within 30 days of their preparation.

A failure to comply with this obligation can result in penalties of up to $63,000. Recently, Domino’s Pizza Enterprises Ltd suffered two infringement notices totalling $18,000 as a result of its failure to provide its franchisees with these documents within 30 days of their preparation. Where 75% or more of franchisees have voted against undertaking an audit, there will be no requirement to have the marketing fund audited. 

What does this mean for your business?

The ACCC regulates compliance with the Franchising Code and will conduct regular checks on franchisors to ensure they are meeting their obligations.

If you would like to discuss the content of this article or find out more information as to your obligations under the Franchising Code, call the NRA today on 1800 RETAIL (1800 738 245).


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