The Code

Under the Franchising Code of Conduct (Sch 1 of the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (Cth)), certain documents must be disclosed to potential franchisees at least 14 days before they enter into a franchise agreement, or make a non-refundable payment to the franchisor. A copy of the disclosure document must also be given to existing franchisees on request, provided that such requests are not made more often than once in every 12 month period.

The disclosure document

Under cl 6 of the Code, franchisors are required to maintain a disclosure document, including the accounts of the franchisor.

The Code sets out very detailed requirements for the disclosure document even including the headings and format which must be used. The forms required for disclosure are set out in Annex 1 of the Code.

See Disclosure requirements.

The disclosure document

Clause 9 of the Code also requires disclosure of other documents to prospective franchisees.

• the proposed franchise agreement; and

• a copy of the Code.

A copy of these documents must be provided at least 14 days before the date on which the franchise agreement is signed or, if they are not available at that time, when they become available.

Clause 11 also requires that an information statement in the form set out in Annex 2 of the Code be provided to prospective franchisees as soon as practicable after they formally apply or express an interest in acquiring a franchised business.

Subfranchisees

Often, the franchising structure will involve a master franchisor for the whole of Australia, with subfranchisors for each state or other region. Under cl 7 of the Code, there is no longer any requirement for a master franchisor to give any disclosure. The disclosure that is required by the Code is by the franchisor which is dealing directly with the proposed franchisee.

Updating disclosure documents

Clause 9(6) of the Code requires franchisors to update their current disclosure documents within four months of the end of each financial year. This would include annexing an updated set of the franchisor’s accounts.

Clause 17 of the Code requires disclosure of any changes in ownership of the franchisor or any litigation against the franchisor or any of its directors, which is not mentioned in the disclosure document.

Clause 22 of the Code also requires the disclosure document to disclose any of the matters referred to in cl 17 of the Code that have changed between the date the disclosure document and the date that it is provided to the prospective franchisee.

Failure to give disclosure

Like any breach of the Code, failure to give disclosure gives the courts the wide powers under Pt IV of the Competition and Consumer Act 2010 (Cth).

The requirements of the Code in relation to the disclosure of litigation are stronger than in relation to disclosure of any other matter. Disclosure is required by Annex 1, Annex 2 and by the Code itself.

Current and completed litigation

The Code and the Annexures require virtually all litigation relevant to the franchise to be disclosed, no matter how weak the claims against the franchisor may be. This includes both civil and criminal proceedings.

Disclosure is also required of any judgment in the previous five years relating to any of the litigation referred to above. This is not limited to judgments in which the franchisor lost.

What is disclosed?

Disclosure is required of the names of the parties, the court or tribunal, the case number and the nature of the proceedings.

See Disclosure of litigation.