by Jason Gehrke
last updated 31/05/2021
Australia to require disclosure documents to be made public
by Jason Gehrke
last updated 31/05/2021
May 2021 - Australia is to establish a mandatory Franchise Disclosure Registry from 2022, raising concerns about commercial confidentiality. Jason Gehrke reports
The disclosure documents of franchise brands operating in Australia will be made available to the public from next year following the announcement of $4.3 million in funding over four years for a Franchise Disclosure Registry, according to a government announcement. Establishing a public register of franchise brands was a key recommendation of the 2018 Franchise Inquiry; however no further information about the register has been available until now.
'While the move applies only to franchises operating in Australia, it is certain to be followed with interest by franchisors on this side of the Tasman,' comments Simon Lord of Franchise New Zealand. 'Although it is not a legal requirement to issue a Disclosure Document to prospective franchisees in New Zealand, it is considered best practice and is mandatory for members of the Franchise Association, which sets out the required contents in Appendix A of the FANZ Code of Practice. Because they contain commercially-sensitive information, such documents are usually issued subject to a confidentiality agreement, meaning that prospective purchasers may only share the information with their professional advisors. The move to place Disclosure Documents on a publicly-available Registry will create concern.
'It is worth noting that Disclosure Documents in Australia, which are regulated by law, are considerably more detailed and onerous than those commonly used in New Zealand, including details of supply of goods and services, rebates and management of marketing funds. Franchisors are also required to give the business address and phone number for each existing franchisee, details of change of ownership or closure of any franchised outlets over the past three years, as well as contact details for former franchisees who exited the system during this time.'
The Australian Registry
The Australian Franchise Disclosure Registry was first announced in the 17th paragraph of a media release by Small Business Minister Stuart Robert released following the recent launch of the Australian Government’s 2021-22 Budget.
According to the Minister’s release, the new registry is 'designed to increase transparency in the franchising sector and the ability of prospective franchisees to make an informed decision before entering a franchise agreement.'
Supplementary information provided to key stakeholders by the Department of Industry indicates that the registry will be released in early 2022 with a transition period to all franchisors to understand their new obligations before the Registry is mandated. Draft regulation to support the creation of the Registry will be developed later this year, and will need to balance the appropriate treatment of franchisors’ commercially-sensitive information against the information to be made available to potential franchisees.
Franchisors will be required to provide updated disclosure documents each year, however no further details about the nature of the Registry, or which government agency will ultimately be responsible for its operation are available at this stage.
Former Small Business Minister and current Australian Small Business and Family Enterprise Ombudsman (ASFEO) Bruce Billson says the Registry will provide potential franchisees with vital information needed before signing a franchise a agreement and will help restore public confidence in the sector.
The concept of a register of franchise brands was also a recommendation of the 2008 Franchise Inquiry, but not adopted by the then Labor government due to concerns that such a move might imply endorsement of brands listed on the register; however the register concept 13 years ago did not extend to making disclosure documents publicly available.
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