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How current does your disclosure document need to be?

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As franchisors are no doubt aware, the Franchising Code of Conduct requires franchisors to update their disclosure document within 4 months of the end of their financial year. But does this mean updated or further information does not need to be provided to a franchisee even if a franchisor has complied with its obligation to update annually with the above timeframe? Not necessarily.

Take the example of the SPAR Licensing case. SPAR (the Franchisor) had delivered its disclosure document to its franchisee in July 2010 and provided financial statements relating to the 2008-2009 financial year (which was strictly compliant with the Code). The franchise agreement was not entered into until February 2011, at which time SPAR’s financial position had dramatically deteriorated. In that case, the court held that SPAR had not provided a current disclosure document in accordance with the Code and therefore, set aside the franchise agreement.

In order to avoid breaches of the Code as well as exposure to findings of misleading and deceptive conduct, franchisors should ensure that franchisees are given accurate and current information at all times. Franchisors should review their disclosure documents regularly and certainly before a franchise is granted to confirm whether the disclosure document is still accurate and not misleading. ┬áIf the franchise system or the franchisor’s position has markedly changed, or other information contained in the disclosure document is inaccurate then the disclosure document should be updated and the information should be disclosed to the franchisee.

Proper disclosure will become even more important with the introduction of penalties for breaches of the Code from 1 January 2015.

For more information about disclosure documents, please contact our Franchise Law team by email franchise@mst.com.au or by telephone +61 8540 0200.