Franchise Disclosure Register
On Friday 11 November 2022 the Franchising Code of Conduct (Code) was amended to make last minute changes to the Franchise Disclosure Register (the Register).
Since July 2022, franchisors have had the ability to access the Register to create and publish a profile ahead of the deadline for registration. For existing franchisors the deadline was 14 November 2022 (deadline).
The Department of Treasury (the Department) administers the Register. The ACCC as regulator, enforces the obligations in the Code including those that relate to the Register.
Subject to a limited exception, all existing franchisors in Australia were required under clause 53C of the Code to create a profile on the Register and provide specific information to the Secretary for inclusion on the Register on or before the deadline.
Until these amendments were made, the Secretary required a franchisor to provide a limited amount of mandatory information in its profile but also asked the franchisor to consider voluntarily providing other information that the Secretary had included in the profile questions.
A franchisor is allowed to upload to the Register copies of its Disclosure Document, Key Facts Sheet and Franchise Agreement if it wants to. However, this is voluntary and not compulsory. Until the recent amendments were made, only these 3 types of documents were able to be uploaded to the Register.
On 15 November 2022, the Register will publish the information and documents uploaded by a franchisor in its profile. The Register will also become publicly searchable from today.
The Competition and Consumer (Industry Codes-Franchising) Amendment (Additional Information) Regulations 2022 (Amending Regulation) was registered on the Federal Register of Legislative Instruments (FRLI). The Amending Regulation commenced on Friday 11 November 2022.
The Amending Regulation amends Part 5A of the Code that deals with the Franchise Disclosure Register.
Most of the amendments are technical in nature but the amendments affect clauses 53A, 53B, 53C, 53D, 53E and 53F of the Code.
The amendments relate to the process and power the Secretary must follow to request information as well as the kind of information the Secretary can determine a franchisor must provide to the Secretary. They also expand the type of documents a franchisor may upload onto the Register to include its logo.
Determination by Secretary of the Department of Treasury (Secretary)
The Amending Regulation amends the Code to give the Secretary to the Department of Treasury (Secretary) the power to make a determination by legislative instrument about the kinds of information the Secretary requires a franchisor to provide on its profile and to be publicly available on the Register.
On Friday 11 November 2022, the Competition and Consumer (Industry Codes-Franchising) Additional Information Required by the Secretary) Determination 2022 (the Determination) was registered on the FRLI. The Determination commenced on the day after it registered on the FRLI. The Determination sets out some additional information that a franchisor must provide as part of its profile on the Register.
Determination by Secretary
- All existing franchisors (who are required to register and create a profile under clause 53C of the Code) must now provide the additional information listed in Section 7 of the Determination to the Secretary to include in their profile on the Register. This means that the information which was previously voluntary to provide has become mandatory to provide. A franchisor who has created a profile will have to go back into their profile and update it for this additional information.
- If a franchisor has less than 2 franchise agreements on foot and the franchisor (or if it is a company its directors) does not intend to enter into a franchise agreement, then the franchisor will not have to provide this additional information. It is not clear from the Explanatory Memorandum how this part of the Determination will operate on the register. It is likely that the Department will need to amend their platform fields to ensure that profile will allow a franchisor to elect to have this exception apply to them so they do not to have to answer this additional information.
- Section 6 of the Determination applies to prospective franchisors who may commence to issue a disclosure document and offer to enter into a franchise agreement after the commencement of the Register. They will be required to register and create a profile under clause 53D of the Code. It makes the same changes as indicated above that apply to existing franchisors.
- Section 7 of the Determination sets out the types of information that are now mandatory to provide. Importantly this information must not contain personal information that relates to an individual other than the franchisor, information that relates to a particular franchisee or information that relates to a particular site occupied by a franchisee.
- The new mandatory information that a franchisor must provide includes:
- the number of years that the franchise or franchise system has operated in Australia – this information is contained in Item 2.4 of a franchisor’s disclosure document;
- the number of existing franchised businesses and franchisees, and businesses owned and operated by the franchisor or an associate of the franchisor in Australia that are substantially the same as the franchised business – this information is contained in Item 6.1 of a franchisor’s disclosure document;
- each State or Territory in which a business or franchise covered by (a) operates – this information is contained in Item 6.1 of a franchisor’s disclosure document;
- in relation to the franchisor’s requirement for the supply of goods or services to a franchisee – whether there are restrictions on acquisition of goods or services by the franchisee from other sources – this information is contained in Item 10.1(b) of a franchisor’s disclosure document;
- if the franchisor requires payment before a franchise agreement is entered into – why the money is required, how the money is to be applied, who will hold the money, and the conditions under which a payment will be refunded – this information is contained in Item 14.1 of a franchisor’s disclosure document;
- details of the costs payable by a franchisee to start operating the franchised business – this information is contained in Items 14.3 – 14.5 of a franchisor’s disclosure document;
- details of payments payable by a franchisee to the franchisor, or an associate of the franchisor, during the term of the franchise agreement – this information is contained in Item 14.6 of a franchisor’s disclosure document. Please note the question is asking for payment ‘during the term’ of the franchise agreement which is quite onerous and not something that is currently required by the Code;
- details of payments payable by a franchisee to a person other than the franchisor or an associate of the franchisor – this information is contained in Item 14.7 of a franchisor’s disclosure document;
- whether the franchise agreement may be varied, unilaterally by the franchisor – this information is contained in Item 17.2 of a franchisor’s disclosure document;
- the term of the franchise agreement – this information is contained in Item 18.1(aa) of a franchisor’s disclosure document;
- whether a franchisee has an option to renew the franchise agreement – this information is contained in Item 18.1(a)(i) of a franchisor’s disclosure document;
- whether a franchisee has any rights relating to goodwill generated by the franchisee – this information is contained in Item 18.1(fa) of a franchisor’s disclosure document; and
- whether the franchise agreement includes a restraint of trade or similar clause – this information is contained in Item 18.1(h) of a franchisor’s disclosure document.
There will be franchisors who created and published their profile early, that may have elected not to provide all of the voluntary information that was asked of them at the time they created their profile, as it was purely voluntary to do so.
We note that the Department has already emailed franchisors informing them that the information the Secretary now requires is mandatory and requesting that they go back into their profiles and update them.
Critically, we noticed that the new mandatory information in the Determination is slightly different to the voluntary information the Department was asking in their voluntary information fields last week. It is unclear whether the profile questions will be updated to ensure they now are consistent with the wording used in the Determination.
It is important when providing this additional information to ensure it is consistent with a franchisor’s existing disclosure document in the Items to which this information relates.
At the time of this publication there are in excess of 1,315 franchisor profiles on the Register.
New Compiled version of the Code has issued
As a result of the Amending Regulation making changes to the Code, a new compiled version of the Code has been published on the FRLI. It is compiled version 9. We have provided a link to the new version below. You should now use the new version with any disclosure document you publish and cease using compiled version 8.
What to do and next steps
- Any franchisor who has not yet created a profile and registered on the Register should do so immediately. The deadline was 14 November 2022. Failure to create a profile is a civil penalty provision with a penalty of up to 600 penalty units ($133,200). Creating a profile, albeit late, is better than no profile at all.
- We expect that the Department may update their online portal and the profile questions page to make provision of the additional mandatory information easier for franchisors but this may take some time.
- If you have created a profile, you should have already received contact from the Department advising you to revisit and update your profile on the Register as soon as possible. You should check that your answers and the information you have supplied is consistent with information contained in your Disclosure Document and Key Facts Sheet and your profile should now include the new mandatory information the Secretary requires. If you fail to provide this additional information you contravene a civil penalty provision and may face a fine or penalty of up to 600 penalty units ($133,200).
- The Department has not stated that they will give any grace period to allow you to update your profile, however we suspect that the Department and the ACCC will be unlikely to take enforcement action in relation to this additional information given the lateness of the recent changes.
A copy of the new compilation 9 of the Competition and Consumer (Industry Codes-Franchising) Regulation 2014 is available here.
If you require any advice on these proposed reforms speak to a member of our National Franchising team.
This article was written by Derek Sutherland, Partner and Sean O’Donnell, Partner.