The Annual Update! Franchisors Ensure You are Ready.
As we approach 30 October 2018, franchisors need to ensure that they have completed their annual update of their Disclosure Document, as well as have met their marketing and/or cooperative fund obligations set out in the Franchising Code of Conduct, the main mandatory laws regulating franchising within Australia.
Failure to update your Disclosure Document or meet the marketing and/or co-operative fund obligations on time can cause financial damage to a franchise system, let alone bad publicity if the ACCC gets involved.
One of the best examples here is Domino’s Pizza Enterprises Limited (‘Domino’s’) which had to pay $18,000 in fines on the basis of 2 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 Franchising Code of Conduct time frames. The information was provided, but it was late. Also, if you fail to maintain a Disclosure Document you could be looking at a $63,000 penalty.
Please note that if your franchise system does not follow the standard Australian Financial Year of 1 July to 30 June, then you may find that your annual obligations are actually due at a different time.
Consequently, now is a timely reminder to ensure:
- You known when your financial year ends, so as to determine timeframes you must meet;
- Once you know your timeframes, work out the prepatory steps needing to be completed to meet your obligations. This is especially important when these steps may involve others providing assistance to complete any particular steps. In this regard, get talking with your accountants, auditors and lawyers early;
- Whether you have met the Franchising Code of Conduct requirements to avoid being required to do an audit of any marketing and/or cooperative fund/s, and if not, whether you can and will be seeking to complete a vote within the required timeframe to see if this step audit steps is actually required;
- You have a risk mitigation system in place to avoid forgetting any important steps or dates. This may include having a clear checklist process, setting out what is to be completed, by whom, dates for review and even a diary system in place with various team members, in case employees change. This should also be reviewed from time to time to ensure it is in line with current Franchising Code of Conduct requirements, and 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;
- 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);
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.