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MAJOR CHANGES TO AUSTRALIAN CODE RECOMMENDED BY FRANCHISE INQUIRY

by Jason Gehrke,
last updated 29/07/2009

December 2008 - The latest Inquiry into franchising in Australia, this time at Federal level, has recommended some significant changes to the Australian Franchising Code of Conduct.

The national franchising inquiry conducted by Australia's Parliamentary Joint Committee on Corporations and Financial Services has handed down its report recommending a number of significant changes to the Australian Franchising Code of Conduct and the operation of the franchise sector generally. This makes particularly interesting reading in the light of New Zealand's current debate on franchise legislation.

The 165-page inquiry report, titled Opportunity not Opportunism: Improving conduct in Australian Franchising, was presented to Federal Parliament on Monday December 1, which will now consider the recommendations and what changes may be made arising from the report.

The 11 recommendations made by the report include a register of franchisors, the inclusion of good faith into the Franchising Code, and the introduction of financial penalties for breaches of the Code, among others. The inquiry has recommended:

1. A statement to be included in disclosure documents outlining liabilities and consequences to franchisees in the event of franchisor failure;

2. A simple online registration system requiring franchisors to annually update the nature and extent of their network, and guarantee they are meeting their obligations under the Franchising Code;

3. A review of the effectiveness of new disclosure provisions introduced on March 1, 2008 to be conducted within two years;

4. Introduction of a better balance of the rights and liabilities of franchisees and franchisors in the event of franchisor failure.

5. Upfront disclosure of what arrangements will apply at the end of a franchisee's term in regard to value transfer of the business as a going concern;

6. A change of name for the Office of the Mediation Advisor to the Office of the Franchising Mediation Advisor;

7. Greater research of the franchise sector by the Australian Bureau of Statistics;

8. A requirement for franchisors, franchisees and prospective franchisees to act in good faith to be included in the Franchising Code of Conduct;

9. The introduction of financial penalties for breaches of the Franchising Code of Conduct;

10. The introduction of financial penalties for breaches of section 51AC, section 52, and the other mandatory industry codes under section 51AD of the Trade Practices Act;

11. Greater freedom for the ACCC to investigate based on credible information in cases where franchisees are too fearful of retribution to provide information.

The Inquiry was conducted over a period of five months, received 159 submissions and involved public hearings in Sydney, Brisbane, Canberra and Melbourne. The Inquiry committee comprised up to 15 representatives from both the Government and Opposition. In a statement following the release of the Inquiry report, chairman Bernie Ripoll MP said the report will 'act as the basis for change in the sector to put the squeeze on the rogues and reward those doing the right thing in franchising.'

‘However, we must also respect the freedom of a contract, the freedom to bargain, and most importantly to allow people to get on with the business of being in business,' he said. ‘This review should be seen as a clear signal to the rogues in the sector to shape up or ship out. The unacceptable practices of some of these operators will not be tolerated.'

To view or download the complete report or its executive summary, click here.

Inquiry draws wide responses and coverage

The Franchise Inquiry has generated a range of responses and coverage in the news media. Concerns have been raised that if all 11 recommendations are accepted by the government then Australia will no longer be viewed as an attractive location by international franchisors to conduct business. Read more.

Legal briefings that interpret the ramifications of the reports recommendations are currently being developed by a number of law firms for their clients. Click here for a sample briefing report.

 

Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees. He has been awarded by the Franchise Council of Australia for his achievements and publishes Franchise News & Events, a fortnightly electronic news bulletin on franchising issues.

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