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Annual Disclosure Document update

Posted by Carolyn Dufton on 1 December 2011
Annual Disclosure Document update

If you have not already updated your 2011 Disclosure Document and your  financial year end was 30 June you are in breach of the Franchising code of Australia.

Under section 6 of the Code, franchisors must update their whole Disclosure Document within 4 months of the end of the financial year, which for most franchise systems is 31 October 2011.

Key points to remember are:

Any franchisee entering into an agreement after 31 October 2011, whether it be as a result of the grant of a new franchise, a resale, a renewal or just as a result of parties entering into an agreement that varies a prior franchise agreement; must have been given the current franchise documentation i.e. updated to at least 1 July 2011, at least 14 days prior to the signing of such documents.

Existing franchisees have the right to request, once every 12 months, that a current Disclosure Document be provided to them. This demand must be met within 14 days of their demand.

The ACCC can as part of their audit powers require a copy of the past and current Disclosure Document and related franchise materials at any time, and franchisors must generally comply within 21 days.

Disclosure Document review

It is recommended that the whole disclosure document should be reviewed with relevant sections updated as required, but pay particular attention to:

  • updated your current list of franchisees and any franchisee that has been transferred, terminated or ceased to operate in the last 3 years.
  • Any changes to franchise recruitment and suppliers arrangements;
  • finalised and updated disclosure regarding the Marketing Fund's expenses for the last financial year;
  • updated disclosure regarding any unilateral variations to your franchise agreement in the last year (new requirement from the Code 2010 amendments which now has to be completed);
  • updated disclosure regarding whether you have taken into consideration any significant capital expenditure by franchisees when determining renewal or expiry arrangements in the last year; (new requirement from the Code 2010 amendments which now has to be completed);
  • updated all Item 13 costs, including recurring or isolated franchisor and third party expenses within the knowledge of the franchisor or reasonably foreseeable by the franchisor. Thus, this includes payments made to the Franchisor or any other third party when initially entering into and during the term of the Franchise
  • ensured that Franchisor's end of Term arrangements are clearly defined.

Financial information:

  • Financial reports for the Franchisor for the last two financial years should be readily available
  • OR a copy of an independent audit by a registered company auditor, confirming that as at end of last financial year, i.e. 30 June 2011, the Franchisor company will be able to meet its debts when due. 

Marketing Fund update:

Prepare an annual financial statement for the marketing fund, and have the financial statement audited by a registered company auditor within 4 months of the end of the financial year.

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Author: Carolyn Dufton
About: Carolyn Dufton Dip. Bus (Franchising) heads the team as the owner and manager of franchisingplus. Carolyn has a wealth of small business experience, and many years of hands on franchising experience.
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