Under the Franchising Code of Conduct (the Code), a franchisor is required to update its disclosure document within 4 months after the end of each financial year. Accordingly, all franchisors with a 30 June financial year-end must update their disclosure documents to reflect any changes that have occurred to their business within the last financial year by 31 October.
Updating a disclosure document takes planning and is required in order to ensure the franchisor’s ongoing compliance with the Code.
Updating the disclosure document includes, but is not limited to, review of the following:
- the Franchisor’s financial details;
- the Franchisor’s list of existing franchisees;
- the Franchisor’s officers, directors of the Franchisor or other corporate details;
- the litigation status of the Franchisor;
- the intellectual property of the Franchisor; and
- the Franchisee’s establishment costs (such as the details of the range of costs to start operating the franchised business, based on current practice).
Franchisors must be wary that the financial details must be up-to-date, noting that financial penalties may apply for non-compliance.
In 2017, the Australian Competition and Consumer Commission fined Domino’s $18,000 when they had reasonable grounds to believe that Dominos had not complied with the time limits in updating the business’s financial details in their disclosure document.
It is also noted that since 15 April 2022, contraventions by a body corporate of certain provisions of the Code attract the new ‘super penalties’, being the greatest of:
- If the court can determine the value of the benefit that the body corporate (and anybody corporate related to the body corporate) has obtained directly or indirectly, and that is reasonably attributable to the contravention—three times the value of that benefit;
- If the court cannot determine the value of that benefit—10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the contravention occurred.
We would be happy to assist in the review of your disclosure documents to ensure they are appropriately updated and Code compliant.
Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.