October Deadline Looms For Your Franchise Disclosure Document

Updating Disclosure Document

  1. For franchisors that operate on a standard financial year (that is, June to July), it is time to review your Disclosure Document and to update that document to reflect any changes that occurred in the last financial year.
  2. Under the Competition and Consumer Act (Industry Codes-Franchising) Regulation 2014 (Cth) (the ‘Code’), a franchisor is generally required to update its Disclosure Document within four months of the end of its financial year.  This means that franchisors that operate on a standard financial year have until 31 October 2020 to update their disclosure document.
  3. Franchisors that operate on a different financial year must ensure that their Disclosure Document is updated within four months of the end the relevant financial year.
  4. The Code does not require a franchisor to update its Disclosure Document if:
    1. that franchisor did not enter into a new franchise agreement, or only entered into one franchise agreement during that financial year; and
    2. the franchisor does not intend, or where the franchisor is a company, its directors do not intend, to enter into another franchise agreement in the following financial year,

(the ‘Disclosure Exemption’).

Request for Disclosure by Franchisees

The Code provides that the Disclosure Exemption will not apply if a franchisee requests a copy of a franchisor’s Disclosure Document.  Where a request is made by a franchisee, a franchisor must provide its latest Disclosure Document within 14 days of the request.  Where a franchisor has relied on the Disclosure Exemption, the Code allows the franchisor up to two months to update its Disclosure Document and to provide it to the franchisee.

Main Areas That Require Updating on an Annual Basis

The main areas that often require updating in a Disclosure Document on an annual basis include:

  1. providing updated financial records of the franchisor;
  2. updating any changes in the directors and/or shareholding of the franchisor (where the franchisor is a company);
  3. updating the details of the franchisees that operate in Australia;
  4. updting the number of new franchises that were granted, transferred and closed in the preceding financial year;
  5. providing any details of any material litigation involving the franchise group; and
  6. details of any rebates or other financial benefits that were received by the franchisor or an associate of the franchisor from the supply of goods or services to franchisees.

Mandatory Disclosure of Materially Relevant Facts

  1. The Code requires franchisors to provide their franchisees with updated disclosure of matters that are ‘materially relevant facts’ which could have a material impact on a franchisee’s business. Examples of ‘materially relevant facts’ include:
    1. changes in the majority ownership and control of the franchisor and/or associate of the franchisor;
    2. court proceedings or judgements against the franchisor and/or one of its directors; and
    3. changes in the intellectual property, or ownership or control of the intellectual property, that is material to the franchise system.
  2. If a Disclosure Document does not contain information on a materially relevant fact, a franchisor has a positive obligation to notify its franchisee(s) in writing of such matter within a reasonable period of time (but no longer than 14 days) after the franchisor first become aware of such a matter.

For more information or assistance with updating your Disclosure Document, please Jacob Thomas or Gerry Cawson.