Will you be issuing outdated Disclosure Documents?
As a franchisor, the Franchising Code of Conduct (“Code”) requires you to update your Disclosure Document at least once a year – four months after the end of the financial year.
This means that for most Australian-based franchisors, you must attend to your 2019 update between 1 July 2019 and 31 October 2019. Importantly, remember that you will not be able to issue any Disclosure Documents from 1 November 2019, until the updates are complete.
The yearly update requires you to provide:
1. An updated Disclosure Document in the 2019 format (with new and/or updated information relating to all likely costs and expenses that may be incurred by franchisees, as well as information relating to changes within the franchise network, including any disputes that have occurred).
2. The franchisor’s financial statements for the last two completed financial years, or alternatively, an audit report from an independent auditor stating that the franchisor is solvent as of 30 June 2015; and
3. An annual financial statement detailing all of the Marketing Fund’s receipts and expenses for the last financial year (Marketing Fund Statement).
Additionally, the Code requires franchisors to:
1: Arrange for the Marketing Fund Statement to be audited by a registered company auditor within 4 months after the end of the financial year (between 1 July 2019 and 31 October 2019) to which it relates; and
2: Provide to their franchisees a copy of:
a). the Marketing Fund Statement, within 30 days of preparing it; and
b). a copy of the audited report of the Marketing Fund Statement, within 30 days of preparing the report.
In addition, franchisors are able to be exempted from the requirement to audit their Marketing Fund Statement.
This means your marketing fund keeps the thousands of dollars that would otherwise be spent on the audit.
So how do I not pay for the marketing fund audit?
If 75% of your current franchisees who contribute to the marketing fund vote in favour that the
franchisor does not have to comply with this requirement, you are then able to be exempted from this requirement.
Audits may be paid out of your marketing fund. However, they are very expensive and you could use the money annually allocated for these audits on further marketing campaigns.
PLEASE NOTE – Franchisors may only rely on this exemption if the agreement is made within 4 months after the end of the financial year.
If you want to use the above exemption this year, please ensure that you discuss this with your franchisees as soon as possible. This way they can vote in favour of the agreement within the required time-frame, which is between 1 July 2019 and 31 October 2019. Records of all votes should be recorded and stored for any later audit or review.
How Can DC Strategy Lawyers Help?
1. We can review and update your Disclosure Document;
2. We can re-draft your Disclosure Document to ensure full compliance with the new
3. We can help you obtain the exemption above, save money and boost the goodwill
of your franchise; and
4. We can protect your franchise from breaching the Code.