It is that time of the year again when all franchisors (including foreign franchisors) should be updating their Disclosure Documents if they have not done so already. As all franchisors should be aware, under clause 6 of the Franchising Code of Conduct (Code) all franchisors are required to update their Disclosure Documents within four months (previously three months) of the end of each financial year. For most franchisors this will mean that their Disclosure Documents should be updated by 31 October 2008. This obligation also applies to foreign franchisors who have granted master franchise rights to an Australian master franchisee.

In addition, under clause 17(1)(c) of the Code, Franchisors who operate a marketing fund, must within four months after the end of each financial year prepare an annual financial statement detailing all of the fund's receipts and expenses for that last financial year.

Clause 17(1)(c) of the Code now provides that a franchisor must give to the franchisee a copy of the financial statement for the marketing fund within 30 days after preparing the statement. There is no longer a requirement for the franchisee to request a copy of the statement. Prior to 1 March 2008, franchisors were only required to give a copy of the financial statement for the marketing fund to a franchisee, within 30 days after receiving a written request from the franchisee.

The obligation for a franchisor to update its Disclosure Document applies even if a franchisor:

  • is not recruiting new franchisees; and
  • is not requested to provide a current Disclosure Document to a franchisee.

To remain compliant with the Code, all franchisors (including foreign franchisors) must maintain a current Disclosure Document at all times and update that Disclosure Document at the end of each financial year.

In particular, the following items of a Disclosure Document need to be updated in respect of the last financial year, which for most franchisors will be the financial year ended 30 June 2008:

  • Item 6.4 - the specified events (e.g. franchises transferred and franchise agreements terminated) for the financial year 2007/2008;
  • Item 12(h) - the marketing fund expenses for the financial year 2007/2008 including the percentages spent on production, advertising, administration and other stated expenses;
  • Item 20.1 - the director's certification that as of 30 June 2008, there are reasonable grounds to believe that the franchisor can pay its debts as and when they fall due; and
  • Item 20.2 & 20.3 - an independent audit report or financial reports for the financial year ended 30 June 2008 must be annexed to the Disclosure Document. (If no audit report is annexed to the Disclosure Document, financial statements for the last two completed financial years must be provided).

In addition, any other matters in the Disclosure Document that have changed in the last financial year also need to be updated, for example, the franchisee's details at Item 6.3 if any franchisees have entered or left the franchise system during that year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.