An Active ACCC – Another Franchisor Admits to Non-Compliance of their Marketing Fund Obligations
On 13 December 2023, the Australian Competition & Consumer Commission (‘ACCC’) issued a media release stating that Delicia Franchising Pty Ltd (‘Delicia’) had agreed to provide it with an enforceable undertaking arising from breaches of its marketing fund obligations under the Franchising Code of Conduct (the ‘Code’).
Delicia is the franchisor of the Delicia Acai + Protein Bar franchise system, which operates nine stores across South Australia and the ACT.
Delicia admitted in its undertaking that it:
- failed to provide franchisees the annual marketing fund financial statement (‘financial statement’) within 30 days of the financial statement being prepared; and
- provided financial statements that did not contain meaningful information about the income and expenses of the marketing fund.
A marketing fund is a fund that franchisees (and the franchisor, where required make financial contributions to for marketing purposes.
Delicia’s conduct contravened the following provisions of the Code:
1. Clause 15(2)(a) – annual financial statement
Within 4 months after the end of the last financial year, franchisors must prepare an annual financial statement detailing all of the marketing fund’s receipts and expenses for the last financial year.
The statement must include ‘meaningful information’ about the marketing fund’s receipts and expenses, such as the sources of income, nature of the marketing services, time period and name of specific marketing campaigns.
The ACCC highlighted the expenses titled ‘advertising subscriptions’ and ‘online content’ as being insufficient for franchisees to understand how and where the marketing fund was spent. Instead, Delicia should include details of which TV channels and websites the advertisements were placed, and the percentage of marketing funds spent on each channel.
For further explanation about what constitutes as ‘meaningful information’ in a marketing fund financial statement, please read our article that summarises the Court’s findings in the 2019 Ultra Tune case.
2. Clause 15(2)(c) – audit of financial statement
The financial statement must be audited by a registered company auditor within 4 months after the end of the financial year to which it relates.
3. Clause 15(4) – Provision of financial information to franchisees
The franchisor must give to the franchisees:
- a copy of the financial statement within 30 days of preparing the statement; and
- a copy of the auditor’s report within 30 days of preparing the report.
The financial statement does not need to be audited if:
- 75% of franchisees in Australia who contribute to the fund voted that the franchisor does not need to comply with the audit requirement; and
- such vote has been made within 3 months after the end of the relevant financial year.
If the franchisees vote in this way, the requirement to audit the fund is waived only for that year and a vote must be re-taken annually.
Other marketing fund obligations
In addition to the marketing fund obligations highlighted in the Delicia undertaking, we remind franchisors that they must also:
- maintain a separate bank account for the marketing fund;
- disclose the total expenditure of the marketing fund for the last financial year as part of the franchisor’s annual update of the Disclosure Document; and
- contribute to the marketing fund on the same basis as other franchisees if the franchisor also operates unit franchises.
Civil penalties apply for failure to comply with these requirements under the Code.
How MST can help
The ACCC continues to investigate and take enforcement action against franchisors that fail to comply with marketing fund obligations.