It’s time to think about updating your Disclosure Document

Under the Franchising Code of Conduct (the 'Code') franchisors are required to annually update their Disclosure Document within four months of the end of the financial year.

If you plan to grow your franchise network by granting any new franchises after 1 July, you will need to provide the franchise candidate with a current Disclosure Document – to avoid any delay during the sign-up process, it is important to start updating your Disclosure Document now!

What do you need to do?

You will need to update any information in the Disclosure Document that is no longer current.

This means that you will need to provide:

1. An updated list of existing franchisees and franchised businesses which are currently operating in Australia;
2. The details of any franchises that were transferred or terminated, did not extend their franchise agreement or were bought back by the franchisor;
3. Updates in relation to any litigation proceedings or intellectual property relating to the operation of the franchise network;
4. Either financial statements for the last two completed financial years or an audit report from an independent auditor stating that the franchisor is solvent as of 30 June 2018; and
5. An annual financial statement detailing the marketing fund’s receipts and expenses for the last financial year and have that audited unless at least 75% of your franchisees have agreed to waive the audit requirement by 30 September 2018.

Franchisors may be exempt from needing to undertake an audit of their marketing fund IF:

75% of franchisees forward their consent to waive this (expensive) audit of the marketing fund. The vote must occur within 3 months of the end of the financial year, so we suggest you contact your franchisees immediately!

Please also note that the marketing fund should operate out of a specific-to-the-purpose bank account. Additionally, any corporate owned outlets are obliged to pay the same marketing levy/fee as your franchise agreement requires of the franchisees.

How DCS Lawyers can help?

DCS Lawyers can assist you in complying with your annual requirements, including the following:

• review and update your 2018-2019 Disclosure Document for a fixed fee; and
• assisting you to obtain the exemption on the audit of the marketing fund.

In addition, DCS Lawyers’ commercial colleagues who are part of the DC Strategy Group can assist with the preparation of an updated financial model based on the previous years’ P&L for franchise recruitment.

Contact us to receive more information about your obligations, or would like our assistance in complying with your obligations under the Code.