A Federal Parliamentary inquiry into franchising has released its report Opportunity not Opportunism: Improving conduct in Australian Franchising and the recommendations strongly favour franchisees. Eleven recommendations came out of the report which focuses on improving disclosure and readjusting the rights of franchisees in relation to termination of agreements or franchisor failure.
Among the recommendations: the disclosure document should include a statement outlining liabilities and consequences to franchisees in the event of franchisor failure; a better balance of the rights and liabilities of franchisees and franchisors in the event of franchisor failure; the introduction of a good faith clause into the Franchising Code of Conduct; an online registration system in which franchisors update annually the nature and extent of their network; a review of the effectiveness of new disclosure provisions introduced on March 1, 2008 to be conducted within two years; franchisor disclosure of the process that will apply at the end of a franchisee’s term in regard to selling the business as a going concern; the introduction of financial penalties for breaches of the Franchising Code of Conduct through amendments to the Trade Practices Act; the ACCC to have greater freedom in investigations based on credible information about breaches of the Franchising Code; the Australian Bureau of Statistics to collect better data on the franchising sector.
The inquiry was conducted over a period of five months and involved public hearings in Sydney, Brisbane, Canberra and Melbourne with representatives from both the Government and Opposition on the committee.
One submission to the committee was made by Tony Conaghan, co-chair of the franchise practice group at law firm DLA Phillips Fox. After the report was released Conaghan said “that disclosure of end of term arrangements which include the transfer process of equity in the value of the business as a going concern, the introduction of an overarching standard of good faith and an online registration system for franchisors are of particular concern. Any prudent franchisor will attempt to comply with its obligations under the Code and the Trade Practices Act,” he explained, “but it is questionable how a compliance guarantee can be issued where compliance has not yet been tested in a court of law.”