It’s that time of year when many franchisors are reviewing and updating their disclosure document as required by the Franchising Code.
To assist franchisors with understanding the types of information that should be disclosed to assist prospective franchisees with their due diligence, The Australian Competition and Consumer Commission (ACCC) have released their updated model disclosure document.
The ACCC’s recent compliance check review into disclosure practices in food franchising found some concerning disclosure practices that can limit a potential franchisee’s ability to conduct due diligence. These included:
- Not adequately disclosing what type of goods was subject to supply restrictions
- Not disclosing unavoidable ongoing costs such as rent, inventory and wages
- Many franchisors making it difficult to contact former franchisees.
It is in franchisors’ interests to be helpful and transparent in their dealings with people looking to buy a franchise by providing clear and meaningful information in disclosure documents.
The ACCC has improved the model disclosure document by:
- Setting out a recommended format for a franchisor’s disclosure document based on the requirements using Annexure 1 of the Code, including format, order, headings and numbering
- Providing tips throughout the document to assist franchisors to fulfil their disclosure obligations, including examples of recent ACCC court cases such as Australian Competition and Consumer Commission v Geowash Pty Ltd [2019]
- Making the document easier to read and understand.
Under the Code, franchisors are required to maintain a disclosure document and to provide this document to a person proposing to enter into, renew or extend a franchise agreement.
The model disclosure document does not constitute legal or other professional advice. The ACCC strongly recommend that franchisors seek advice from professionals with experience in franchising to ensure they comply with disclosure obligations and other requirements under the Code.
You can find more information in the franchisor compliance manual.
For franchising resources designed for prospective franchisees, go to:
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