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On 6 February 2007,
Australia's Federal Minister for Tourism and Small
Businesses announced the Government's response to
the review of the disclosure provisions of the
Franchising Code of Conduct (the "Code"),
undertaken by the Mathews Committee in late 2006.
Changes are to be made to Australia's franchise
law.
For franchisors currently in or
thinking of entering the Australia market, the
recommended changes will result in increased
compliance costs.
The Government has agreed
with 31 of the Committee's 34 recommended changes.
The change of greatest relevance to UK and US
franchisors is that the 'Single Foreign Franchise
Exemption' will be deleted from the Code meaning
that foreign franchise systems will no longer be
exempt from the application of the Code. Other
changes include the following:
- A Franchisor must provide a
copy of the franchise agreement, in the form in
which it is intended to be executed, to the
prospective Franchisee at the same time as the
disclosure document is produced. In addition, a
Franchisor may have to provide copies of all
other documents to be signed by the Franchisee
at least 14 days prior to signing (or if not
available then, at the earliest
opportunity).
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- Any undertakings given by the
Franchisor must be disclosed within 14
days.
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- The Disclosure Document must
now not only disclose any rebates that are
given, but also the amounts of or method of
calculation of rebates or other financial
benefits to a Franchisor or an associate, from
the supply of goods or services to a
Franchisee.
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- Marketing statements must be
audited annually and there will be no opting out
process even if a Franchisee
consents.
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- Disclosure of specific details
about previous Franchisees may be required -
name, location of franchise and contact details
- subject to privacy and consent
rules.
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- Although in practice, rarely
used, short-form disclosure will be deleted as
an alternative to using the format in Annexure 1
of the Code.
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- Disclosure of materially
relevant facts must be made within 14, not 60,
days.
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- The 'Partial Franchise
Exemption', applicable where franchise turnover
is less than 20% of total turnover, will be
deleted.
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- Financial disclosure
obligations will be extended to include the
financial reports for the relevant consolidated
entity. In addition, the audit period set out in
Clause 6(1) of the Code will be changed to match
the audit period under the Corporations
Act.
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- A separate document containing
the details and historic background to a
franchise site must be provided at the same time
as the Disclosure Document.
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- A Disclosure Document must also
be provided to existing Franchisees, who intend
to renew a franchise agreement or extend the
scope or term of a franchise agreement.
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Franchise Council of Australia welcomes the
Government's response and comments that the review
of the Code and the Government's response are
evidence of the efficacy and strength of
Australia's current franchising
regime.
Legislation has not yet been
produced but it is predicted that the drafting and
enactment process will be swift, on the basis that
the Code can be amended by regulation, under
provisions 51AD and 51AE of the Trade Practices
Act. Rumour has it, that the effective date could
be as early as 1 July 2007.
For more
details, contact Mark Abell or
Babette
Märzheuser-Wood.
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