ACCC cracks down on franchises

August 23, 2015

ACCC cracks down on franchises

ACCC and franchisesFranchisors need to be aware of their new legal rights and disclosure obligations under the new Franchising Code of Conduct to eliminate the risk of non-compliance.

The Australian Competition and Consumer Commission (ACCC) announced this year that it would be cracking down on breaches of the Franchising Code. Currently, the maximum fine a court may order is $51,000 per breach. Under the Australian Consumer Law, the ACCC can take enforcement action against franchisors who fail to comply.

Good faith obligations

The New Code requires the parties of a franchise agreement to deal with each other in good faith. While this implies the need for the parties to act honestly and fairly, the exact meaning of good faith can quite easily be interpreted differently.

Franchisors should also consider the legitimate business interests of the other party to ensure they meet their good faith obligations and stay compliant.

Disclosure requirements

The short-form disclosure document has been removed. Franchisors must compose a new disclosure document using a prescribed format outlined in the New Code, and update their existing disclosure documents by 31 October 2015.

In addition to the format changes, there are some significant differences in the new disclosure document concerning the collection and use of marketing fees, the supply of goods and services to a franchisee, the ability to sell online and when capital expenditure is payable by franchisees.

Franchisors must issue an information statement with the disclosure document following a franchisee’s formal expression of interest in obtaining a franchise business. The statement should outline the risks and rewards of franchising for prospective franchisors. Once they have entered into a franchise agreement, franchisors have four months to amend their disclosure documents after the end of their financial year.

Transfer of a franchise agreement

The new Code expands the process that the parties have to follow to transfer a franchise agreement. Franchisors now have to provide written consent before a transfer can occur. Where a franchisor denies consent, they must be able to provide a valid reason and facts to support the refusal. Whilst the changes strengthen the position of franchisors in relation to franchisor conduct, it is critical that those looking to acquire a franchise are also aware of the changes and how these may affect their position.


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