Often Franchisors finish the annual update of the Disclosure Document and think they have satisfied their disclosure obligations for the year.
However, Franchisors have ongoing disclosure requirements to disclose materially relevant facts under the Competition and Consumer (Industry Code – Franchising) Regulations 2014 (‘the Code’). Clause 17 of the Code sets out materially relevant facts that franchisors must notify franchisees or prospective franchisees about, within a reasonable time, not exceeding 14 days, after the franchisor becomes aware of the fact.
This ongoing disclosure obligation applies to a materially relevant fact that has not been mentioned in a Disclosure Document and is a matter listed under clause 17(3) of the Code.
One of the materially relevant facts listed in clause 17(3) is where there has been a change in majority ownership or control of the franchisor or an associate of the franchisor or the franchise system. An example of a change in majority ownership or control of the franchisor may include the sale of the Franchise system to a third party, or one of the existing owners buying out another existing owner. Another example may include a change in directors of the franchisor or a related body corporate of the franchisor.
Other material facts that must be disclosed to franchisees include commencement of legal proceedings against the franchisor by a public agency (for example the Australian Competition and Consumer Commission), a judgment in criminal or civil proceedings or an award in an arbitration against the franchisor, or any changes in the intellectual property relevant to the franchise system or ownership or control of that intellectual property.
It is important that a franchisor consider its disclosure obligations under the Code whenever there is a material change to the franchise system to determine whether such change must be disclosed to franchisees outside of the disclosure document. Failure to comply with the disclosure requirements under the Code may attract large penalties; therefore, franchisors please ensure you understand your ongoing disclosure obligations and reach out to our Franchising team if you are unsure.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.