The Franchising Code of Conduct may be about to change again - this time, to introduce a ‘Franchise Disclosure Register’.
It remains to be seen whether the exposure draft of the changes will become law (through changes to the Code), and if so whether any amendments are made as a result of the consultation process. Regardless - in anticipation, Holman Webb’s Franchising & Retail Group has answered some FAQs in respect of the introduction of the register.
What is the Franchise Disclosure Register?
The Franchise Disclosure Register will be a comprehensive database of franchisors’ disclosure documents. Currently, franchisors only make their disclosure documents available to prospective franchisees or when requested by existing franchisees. However, the register will essentially make the disclosure document public.
Who can access the Franchise Disclosure Register?
Anyone will be able to access the register and view documents that have been uploaded.
What documents will be included on the Franchise Disclosure Register?
Each franchisor will be required to upload their disclosure document. This document must be updated annually (subject to the below exception) and is designed to provide prospective franchisees with relevant information regarding the franchise system.
The disclosure document provides information about the nature and history of the franchisor, the arrangements it has with franchisees and the size of the franchise network. Any update of ‘materially relevant facts’ required by the Code must also be updated on the register.
There are exceptions - for example:
- personal information (which could potentially include information about the franchisor’s key personnel, or details of franchisees) and site-specific information must be removed; and
- the amount of rebates received in the previous financial year may be removed. However, in some cases franchisors must provide their financial statements for the previous two years.
In the current exposure draft, those financial statements are not subject to an exclusion and it appears must be made available on the register.
Who is required to take part in the Franchise Disclosure Register?
All franchisors operating within Australia are required to participate in the Franchise Disclosure Register.
The only exception is where a franchisor only entered into one franchise agreement in the previous financial year and does not intend to enter into a new franchise agreement in the next financial year.
If this is the case, a franchisor is not required to update their disclosure document under the Code; however, franchisors in these circumstances must still add their basic details to the register and explain why their disclosure document does not require updating.
When does the Franchise Disclosure Register start?
According to Treasury, the register will be ready to receive documents by March 2022. However, the deadline for uploading the required material is 31 October 2022. This deadline applies regardless of whether the franchisor operates on a 30 June or 31 December financial year.
What happens from here?
The consultation window for the exposure draft has now closed. Franchisors must follow any updates to the draft legislation made as a result of the consultation process, and be ready to upload their documents by next year.
Franchisors should also start thinking about the consequences of making their disclosure documents public, and how those consequences could be mitigated.
If you have a query relating to any of the information outlined above, or would like to speak with someone in Holman Webb’s Holman Webb’s Franchising & Retail Group with regard to a matter of your own, please don’t hesitate to get in touch today.