2021 Disclosure Document Update – 9 Amendments to the Franchising Code of Conduct You Need to Be Aware Of

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DATE PUBLISHED: October 25, 2021

It’s that time of year again – Disclosure Document update time. 

Each year, franchisors must review and update their Disclosure Documents prior to 1 November 2021. With that deadline quickly approaching, we take this opportunity to remind franchisors of this obligation along with some additional considerations for this year’s update.

This year, the process will be different and somewhat more cumbersome, as franchisors will need to ensure that they comply with the recent Franchising Code of Conduct (the Code) amendments. Failure to do so may result in a breach of the Code and potential exposure to the civil penalties introduced by this years’ amendments. 

In addition to the usual update to reflect changes in the franchising network, Disclosure Documents must now include the below additional information. To make life easier, a proforma Disclosure Document can be found at Annexure 1, Schedule 1 of the Code, which incorporates the required changes. 


Summary of Additional Information


1

rebates

A franchisor is now required to disclose additional details regarding rebates or other financial benefits received from the supply or supplier of goods or services to the franchisee. If the franchisor receives or will receive a rebate or other financial benefit, they must disclose:


  • the nature of the rebate or other financial benefit received from each supplier;
  • the name of each business providing the rebate or other financial benefit;
  • the total amount of rebates or other financial benefits received in the previous financial year expressed as a percentage; and
  • whether a rebate or financial benefit is shared directly or indirectly with the franchisee (if shared with the franchisee they must provide the method of calculation and a description of each benefit).

2

capital expenditure

Where capital expenditure is disclosed in the Disclosure Document, the franchisor must now include as much information as practicable about the expenditure, including:


  • the rationale for the expenditure;
  • the amount, timing and nature of the expenditure;
  • the anticipated outcomes and benefits of the expenditure; and
  • the expected risk associated with the expenditure.

3

dispute resolution

Previously, the franchisor under the Code was only required to disclose disputes that were formal court proceedings or judgments. Now, the franchisor must disclose the percentage of franchisees which have been involved in a dispute with the franchisor, regardless of how it was resolved (e.g. mediation or alternative dispute resolution process).

4

termination

The Disclosure Document must include details of the franchisors and the franchisees right to terminate the franchise agreement and in what circumstances those rights can be exercised.

5

goodwill

The franchisor must disclose the franchisee's rights (if any) relating to any goodwill generated by the franchisee. 

6

earnings information

If the franchisee proposes to provide earnings information, it must now be included in or provided with the Disclosure Document. If the franchisor provides the earnings information after the Disclosure Document is provided, the 14-day mandatory disclosure period re-starts from the date the earnings information was provided. Additionally, if a Franchisee gives earnings information to a prospective franchisee before giving the Disclosure Document, the franchisor must provide that same earnings information in the Disclosure Document.

The franchisor must also give the following statement in the Disclosure Document:

“To the best of the franchisor’s knowledge, the earnings information given is accurate (other than particular earnings information specified in the document as earnings information that the franchisor knows is not accurate).”

7

lease details (if applicable)

If the franchisor holds a lease or grants a franchisee the right to occupy a business premises, the disclosure information provided to the franchisee must include either a copy of the lease or, if that is not available, the proposed commercial terms for the lease. 

8

restraint of trade

The Disclosure Document must provide information on any restraint of trade obligations under the franchise agreement. 

9

key facts sheet

The franchisor must provide a key facts sheet to the prospective franchisee 14 days before the franchisee enters into the franchise agreement or at least 14 days before the franchisee makes a non-refundable payment. The key fact sheet is not a substitute for the Disclosure Document, but it must reflect the information in the franchisor’s current Disclosure Document. An updated Key Fact Sheet can be located on the ACCC here. 


If you are unsure as to whether or not your Disclosure Document complies with the Code or require any assistance with this year’s update, please fill out the enquiry form below and mention this article for an obligation-free appointment.

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