Get Ready – It’s Annual Update Time!
Given that most franchise systems within Australia follow the standard Australian Financial Year of 1 July to 30 June, we are fast approaching the expiry of the 4 month period, Franchisors have from the end of their last Financial Year to have updated their Disclosure Document. Additionally, for those Franchisors with marketing/co-operative funds, they must also meet the marketing and financial audit and/or statement requirements (with its own timeframes) per the Franchising Code of Conduct (‘Code’).
While there are some exemptions to the above, these are very limited and with harsh financial penalties, which have only increased from 1 July 2017, let alone the other legal and brand damage consequences Franchisors, and/or its team members could face, it is extremely important parties are proactively taking steps to be aware of and meet their obligations. As discussed in our recent blog articles, the ACCC have started to take action against Franchisors and/or their directors and managers where they believe the Code has been breached.
Just as an example, only recently Domino’s Pizza Enterprises Limited (‘Domino’s’) paid $18,000 in fines on the basis of two ACCC infringement notices alleging that Domino’s failed to provide its Australian franchisees with a financial statement for the company’s marketing fund and an auditor’s report within the required Code time frames. The information was provided, but it was late. Also, if you fail to maintain a Disclosure Document with the new penalties you could be looking at a $63,000 penalty.
Given the above, a few steps you should consider include:
- Knowing when your financial year ends, as this determines the relevant timeframes you must meet, and having diary reminders to start the update process well in advance to avoid a deadline rush. (While rare, in the past we have had a Franchisor client change its financial year that consequently brought forward the timelines deadline by a few months);
- Working out what you are required to provide and/or organise regarding your financial disclosures – auditors report or the last two years completed financial reports, plus any additional disclosures if you are part of a consolidated group. This can be a time consuming process so the earlier you start with your accountants and/or auditors, the better;
- When preparing your Disclosure Document for its update, involve your management, operations and franchising departments, as well as your franchising lawyers and accountants. Each of these parties could be aware of different material needing to be disclosed, and which may not have previously been communicated to everyone. (It may also be an opportunity to work with your lawyer to tidy up or tighten issues faced during the last year);
- If you have a Marketing/Co-operative Fund, you should diarised the important due dates with early alert reminders for: preparing and providing the required financial statements to your franchisees; and completing and providing to franchisees the required audit reports and information or completing the necessary vote to avoid requiring any audit.
You should allow extra time to reduce the risk of missing a deadline and facing penalties. Furthermore, having extra time allows you time to look at whether there is any way to improve current processes, i.e. having conferences at specific dates to enable a vote to take place and/or distribute relevant information more efficiently.
Again, the above are just a few matters for consideration. Given the impact of getting it wrong and the additional opportunities for improvement by having that extra time up your sleeve, if you have not already, now is the time to speak with your legal and accounting advisors (who you should ensure have extensive franchising experience) to ensure you are on the right track.
Please note this brief update, does not purport to be comprehensive advice relevant to your circumstances. Consequently specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.