Q&A on the Franchise Disclosure Register

All franchise systems must have registered on the new Franchise Disclosure Register by November 14, 2022, ready for the Register to go “live” on 15 November 2022.

We answer the top six questions we have fielded on compliance requirements. For those seeking more detail we have expanded on each question and answer in the commentary section below.

Do I have to answer the “optional” questions?

Technically no, for the moment. However we are recommending that franchisors do answer the additional optional questions. The Department has flagged amendments to the Code to make the optional requirements mandatory by the end of November. Franchisors that do not answer the optional questions will likely have to log on again to provide the extra answers.

Do I have to lodge my disclosure document on the Register?

No, franchisors do not need to lodge their disclosure document on the Franchise Disclosure Register. We repeat, franchisors do not have to lodge their disclosure document on the Franchise Disclosure Register (This is by far the most misunderstood aspect of the Register.)

Do I have to lodge my franchise agreement on the Register?

No, franchisors do not need to lodge their franchise agreement on the Franchise Disclosure Register.

Is registration possible for a foreign franchisor that does not have an ABN?

Yes, but not via the Register itself. The Department has published the following on the Register website:

The Franchise Disclosure Register authenticates franchisors using their Digital Identity. At this time, this requires businesses to have an Australian Business Number (ABN). Organisations without an ABN can email info@franchisedisclosure.gov.au for options for creating a profile.

We recommend foreign franchisors email a Word version of the answers to the questions to the Secretary at info@franchisedisclosure.gov.au with a request for the Secretary to effect registration on behalf of the franchise system. This should be done by 14 November 2022. The person sending the email should be the authorised representative of the franchisor, as the Secretary will likely communicate further on receipt of the email.

Are there penalties if I fail to comply by November 14?

Yes there are significant potential penalties. However at the recent FCA Legal Symposium ACCC Deputy Chair Mick Keogh indicated that the ACCC would take a pragmatic approach to enforcement, noting that the Register is new and there are likely to be teething problems.

Is there anything else I should be doing at this time?

Yes, we strongly recommend undertaking a review of your Franchise Agreement to ensure it is Code compliant, and does not contain any unfair contract terms. This review is important given it is likely that the Australian Consumer Law will be amended to make it an offence (attracting substantial corporate and individual pecuniary penalties) to include an unfair term in a standard form small business contract. Fresh consideration should also be given to considering whether your operational practices mean that the franchise agreement may not be a “standard form” contract.

We have also found a lot of franchisors are using a template form of disclosure document that is not in the current format. So an overall external review of compliance processes has considerable merit.

Commentary

This section provides more detail to the Q&A set out above. For assistance with updating your disclosure document and Franchise Disclosure Register compliance, please contact any member of our franchising team.

Do I have to answer the “optional” questions?

When the Franchise Disclosure Register was first launched we noticed that the Department had added 11 extra mandatory questions beyond the six questions actually listed in the Franchising Code of Conduct. We queried this with the Department, which addressed the error by announcing that the extra questions will in fact be “optional” until they amend the Code again in mid-November.

The portal has been updated to include the following new question:

Do you wish to provide all the Disclosure Information for publication on the Register? If you answer yes you will be required to complete all of the fields to publish a profile. If you answer no you may fill I all or some of the fields. Any disclosure information will be publicly available in your published profile on 15 November 2022.

There is a dropdown menu with a Yes / No option.

Although franchisors are not required to answer the extra questions, in most cases we are recommending that franchisors do answer the additional optional questions. Franchisors that do not answer the optional questions will likely have to log on again to provide the extra answers shortly after the registration deadline.

To do so select “Yes”, then complete the responses. For the most part the questions are statistical in nature, and relatively innocuous.

That said, we have contributed to the submission by the Franchise Council of Australia objecting to a proposal to empower the Secretary to impose new compliance obligations without amending the Code. This would add to compliance uncertainty, and conflicts with the oft-stated intent that new compliance obligations would only be introduced after appropriate industry consultation.

Do I have to lodge my disclosure document on the Register?

No, franchisors do not need to lodge their disclosure document on the Franchise Disclosure Register. It is possible to upload the disclosure document to the Register, but we are currently recommending that franchisors do not do so.

This is by far the most misunderstood aspect of the Register. The Government had initially announced this would be part of the disclosure requirements, but sensibly did not proceed with the requirement when alerted to the substantial risk of disclosure of confidential and commercially valuable information.

If franchisors do choose to upload their disclosure document they must redact certain information from the disclosure document.

Do I have to lodge my franchise agreement on the Register?

No, franchisors do not need to lodge their franchise agreement on the Franchise Disclosure Register. Although it is possible to upload the franchise agreement to the Register, we are currently recommending that franchisors do not do so. Indeed we consider there are additional material risks in doing so.

Is registration possible for a foreign franchisor that does not have an ABN?

No, not via the website portal. However compliance has not been waived for foreign franchise systems. The Department has published the following on the Register website:

The Franchise Disclosure Register authenticates franchisors using their Digital Identity. At this time, this requires businesses to have an Australian Business Number (ABN). Organisations without an ABN can email info@franchisedisclosure.gov.au for options for creating a profile.

Our sense is that the Department will ask you to confirm that you are an authorised representative of the franchisor in some other manner, and will probably then allow you to submit your registration to them manually by email. However the lodgement deadline is looming, and we have other suggestions for those keen to finalise their compliance obligations. That may involve providing to the Secretary of the Department a PDF version of the questions and answers, and requesting that they upload the information. Our concern is that any “solution” developed by the Department may not be as simple, and you may risk missing the compliance deadline.

A PDF version of the answers to the questions could be sent to the Secretary at info@franchisedisclosure.gov.au with a request for the Secretary to effect registration on behalf of the franchise system. This should be done by 14 November 2022. The person sending the email should be the authorised representative of the franchisor, as the Secretary will likely communicate further on receipt of the email.

Are there penalties if I fail to comply by November 14?

Yes there are significant potential penalties – 600 penalty units, or $133,200.

However at the recent FCA Legal Symposium ACCC Deputy Chair Mick Keogh indicated that the ACCC would take a pragmatic approach to enforcement, noting that the Register is new and there are likely to be teething problems.

That said, the requirement to update disclosure documents by 31 October (for franchisors with a June 30 financial year) has been a long-standing requirement, and also attracts substantial penalties. The Franchise Disclosure Register will give the ACCC an excellent potential indicator of which franchisors may not have met that requirement.

Is there anything else I should be doing at this time?

We strongly recommend undertaking a review of your Franchise Agreement to ensure it is Code compliant, and does not contain any unfair contract terms. This is particularly important for automotive industry clients, as there are new Code requirements for franchise agreements.

A review for unfair contract terms is important given it is likely that the Australian Consumer Law will be amended (we expect the amending legislation to pass either late this year or early in 2023) to make it an offence (attracting substantial corporate and individual pecuniary penalties) to include an unfair term in a standard form small business contract. Many provisions in a standard franchise agreement could be considered unfair. A key part of the exercise is to avoid emasculating the agreement or creating additional uncertainty when conducting the risk assessment. As the potential fines are so great we believe fresh consideration should also be given to seeing if your franchise agreement could avoid being considered to be a “standard form” contract.

We have also found a lot of franchisors are using a template form of disclosure document that is not in the current format. So an overall external review of compliance processes has considerable merit.