Franchising news – What affect does COVID-19 have on your franchising business?

02 April 2020

These are unprecedented times. The impact of both the Coronavirus itself and the Government’s action to combat this health and economic crisis, have had (and will continue to have) an enormous impact on many businesses. Businesses are having to make quick and sometimes uncomfortable decisions in order to sustain themselves into the foreseeable future and franchise networks have not been immune.

The issues that each franchise network is facing will differ. Set out below are links to a number of relevant articles on key topics written by our specialty teams that may be relevant to you or franchisees in your network.

In addition, a few key points that we have recently seen come up, but which may not be at the forefront of your mind, include:

Compliance

It is easy to forget some of the basic compliance obligations under the Code. Pay special attention to ensuring you continue to meet those obligations and watch the key timeframes. Many of the provisions of the Code are civil penalty provisions for which a fine or penalty apply for contravention.

Notices

In your agreements you should check to see if  notice provisions contemplate service of notices by electronic means, as personal service or service on (closed) premises may be difficult. If your agreement doesn’t allow for service by electronic means, consider amending your agreement by a simple deed to change it, particularly if you are agreeing to vary any terms in any case.

Service

To avoid missing important notices served on your registered office, check to make sure the registered office is open or consider registering a change to the registered office to a safer address with ASIC. As a general rule, PO Boxes are not usually permitted. Obviously watch out for notices served on you during this period particularly when people are working remotely.

Agreeing to suspend payments

If you are considering suspending payments for royalties or marketing fund contributions you should check that your corresponding obligations are still able to be met or are also suspended. It may be prudent to agree to a ‘standstill arrangement’ where certain rights and corresponding obligations are suspended or ‘standstill’ during this period. It is important to make sure the arrangement is clearly articulated.

Unprecedented legislative intervention in contracts

Whilst normally it is unusual, in this environment State, Territory and Commonwealth legislation is intervening in some contractual relationships. It may be necessary to reach an agreement with your landlords on what is to happen during this period. Where a bank guarantee or security deposit has been paid it is important to reach some form of standstill agreement which should also be made subject to any mandatory intervention by government.

Marketing funds

If you are considering a ‘standstill’ on your marketing or cooperative fund arrangements, or refunding any contributions already made, it may be necessary to obtain a written agreement. In the case of a standstill, consider what the standstill will apply to, when it will end and also allow for an extension. If you are looking to refund contributions, you should ensure, before refunding, that you check the terms of your agreement on how it is to be distributed.

Solvency

If you are worried about solvency issues you need to seek advice from professionals in this area. Attached below is a link to a recent article published by our insolvency team on recent changes to insolvency law. If you intend to enter into a franchise agreement (including a renewal or transfer or an agreement to extend the scope or term of a franchise agreement) then your disclosure document will need to have a solvency declaration attached. Always consider and seek advice on the application of item 21.6 and Clause 17 of the Code and what steps you have to take to comply.

Anti- competitive conduct

It is easy in this period of uncertainty to forget some basic principles. You should remind and reinforce with your staff the basic rules which are designed to prevent anti-competitive behaviour when engaging with competitors. In this environment simple discussions between representatives of companies that are competitors about what their organisations are doing in response to COVID 19 can have significant consequences.

Supply Chain integrity

Now more than ever franchisors involved in supply arrangements need to work closely with their supply chains to be vigilant in relation to continuity and the width and depth of supply and to move quickly to approve other suppliers or alternative products where normal supply is not practical. Most agreements allow for franchisees to use alternative suppliers or use substitute goods or services in circumstances where supply is not assured. You should check your rights and obligations and seek advice where it is not clear before you act.

Remember, this health crisis will take time  to pass and maintaining your focus has never been more important. Focus on the key issues that affect you, your staff and franchisees. Seek advice on areas in which you are uncertain. If we can assist in any way, please reach out and contact a member of our Franchising Team.

Stand down provisions and the COVID-19 outbreak: What rights do employers affected by COVID-19 have to stand down employees?

The outbreak of COVID-19 presents a unique and unprecedented challenge to Australian employers. While some employers are facing significant financial strain as a result of reduced trade, restricted business operations and government-imposed restrictions, others are facing shut down of their businesses entirely.

For many employers, it is not possible for existing staff members to continue in their normal capacity. As a result, many employers are facing the question of whether they can temporarily stand down their employees without pay.

Please click here to view.

COVID-19: *UPDATE* NSW Government tenancy amendments

COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (Act) received assent on 25 March 2020, giving the NSW Government the power to prohibit: the repossession of premises, terminate a tenancy agreement, or regulate / prevent the enforcement of landlords rights, and exempt a tenant or classes of tenants from complying with the law or their tenancy agreements for six months from the making of the regulations, whilst the Federal Government contemplates rent freezes.

Please click here to view.

Coronavirus and commercial contracts – No force majeure clause? Can the doctrine of “frustration” assist?

As the coronavirus (COVID-19) pandemic continues to spread, more and more parties are finding themselves in a position where they are unable to carry out their contractual obligations. Our previous article looked at the role of a force majeure clause in potentially assisting parties to suspend or be excused from the performance of their contractual obligations. In this article, we examine the common law doctrine of frustration and consider how it may apply to the coronavirus pandemic, particularly in light of the recent government bans that have been proclaimed by state and federal government.

Please click here to view.

Government COVID-19 Stimulus Plan: Tax-related measures

Social-distancing and self-isolation measures to tackle the spread of COVID-19 have seen Federal, State and Territory Governments pass unprecedented legislation in an attempt to protect Australia’s economy as best as possible. In particular, the Government passed a package of Bills to implement the $17.6 billion economic stimulus package on 12 March 2020, and a second $66 billion economic stimulus package on 22 March 2020. Further support will be provided by way of Federal Government loan guarantees, $15 billion of support for smaller lenders and Reserve Bank measures, and ATO administrative measures.

The key tax-related measures provided by the Federal, State and Territory Governments are summarised in the tables below. Businesses will need to carefully understand the measures available to their circumstances, the method and timing through which the stimulus is to be provided in order to factor this into financial forecasts and revised budgets.

Note: This publication is current as of 25 March 2020, subject to further tax and business related incentives that may be enacted.

Please click here to view.

Disruption – Update to insolvency laws

Matters relating to COVID-19 are evolving quickly. Information that was relevant only days ago is quickly being overtaken and superseded by new developments. Such considerations add further pressure to an economy already burdened by the effects of the recent bushfires and a general slowing in market conditions. Already this year, the market has seen the insolvency of McWilliams Wines Group, Jeanswest, Colette and Kikki-K to name a few.

In further measures to improve the economic impact of COVID-19, the Treasurer made various announcements in relation to insolvency laws.

Please click here to view.

COVID-19 AND AGMS

On 20 March 2020 ASIC released guidelines for upcoming AGM requirements as companies are impacted by social distancing requirements in response to coronavirus (COVID-19).

Please click here to view.

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