New Franchise Disclosure Register being introduced in 2022
By Belinda Ozgun, Lawyer
Following amendments made to the Franchising Code of Conduct (‘Code’) earlier this year, including the introduction of a Key Facts Sheet to accompany franchisor Disclosure Documents and the increasing of the cooling-off period from seven to 14 days, the Federal Government has remained focused on improving franchisee information and awareness. In September of this year, the Government released draft amendments to the Code setting out further changes to it, to come into effect in 2022. These amendments reflect the 2021-22 budget announcement of $4.3 million for the development of a new Franchise Disclosure Register, due to commence on 31 March 2022.
What is the Franchise Disclosure Register?
The Franchise Disclosure Register (‘Register’) will be a public database of franchisors’ Disclosure Documents and other relevant information which is currently only provided by franchisors to prospective franchisees or existing franchisees on request. The Register is established in the Code by the insertion of Part 5A, which outlines the rules for the governance and maintenance of the Register and imposes the obligation on franchisors to provide relevant information to the Register. The intended purpose of the Register is to assist prospective franchisees in making informed decisions and conducting their own due diligence before entering into a franchise agreement, by allowing them to search the Register for documents and relevant information relating to numerous franchise systems.
Who can access the Register and when does it commence?
In order to transition to the new Register, existing franchisors have an initial obligation to provide their Disclosure Document and relevant business information to the Register before 1 November 2022. Existing franchisors must either provide their Disclosure Document updated to 30 June 2022, or their most recently updated Disclosure Document. In addition, clause 53C(2) sets out the identifying business information that must be also provided in order for prospective franchisees to identify franchise systems and search the Register. In particular, this includes the name of the franchisor, the name under which the franchisor carries on the franchise business in Australia and the address of the franchisor’s registered office and principal place of business.
Given that the Register will be accessible by the public, certain personal and commercially sensitive information can be redacted from the Disclosure Document before it is uploaded and published to the Register. Supplier rebates, information on franchise site restrictions and territory exclusivity, material conditions of financing arrangements offered to franchisees, and the personal information of former franchisees are amongst some of the sensitive information which should be redacted.
Ongoing obligations apply to franchisors to update and provide documents for publication on the Register annually to ensure that the most accurate and up-to-date information is accessible by prospective franchisees. If clause 8(7) of the Code applies to a franchisor and it is not required to update its Disclosure Document, an ongoing obligation applies which requires a notice to be uploaded to the Register outlining why no changes are required to be made. Further, any materially relevant information which is not included in the documents published on the Register after 30 June 2022 must be updated and corrected within 14 days of the franchisor becoming aware of the matter. Maximum civil penalties for non-compliance with these new provisions of the Code are 600 penalty units (currently $133,200) for a corporation.
The exposure draft was open to submissions until 29 October 2021. The consultation process has now ended with the Register on track to commence on 31 March 2022.
If you have questions or require assistance in relation to the establishment of the Franchise Disclosure Register or your obligations under the Franchising Code, please do not hesitate to contact a member our Franchising Team on +613 85400200 or via FranchisingGroup@mst.com.au.