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In March 2021, the Federal Government announced a number of
amendments to the Franchising Code of Conduct (Franchising Code)
following an enquiry into the operation and effectiveness of the
Franchising Code. Further adjustments have since come into impact on 15
April 2022, which is able to see elevated penalties being imposed on
franchisors for breaching sure provisions of the Franchising
Code. In this text, we’ve summarised these new adjustments.
Maximum penalties for franchisor breaches
Franchisors who’re discovered to be in breach of the Franchising
Code will now be uncovered to higher penalties. These penalties
apply to an array of clauses of the Franchising Code.
In most circumstances, the utmost penalty might be as much as $133,200.
However, for breach of sure provisions, the utmost penalty for
companies would be the higher of:
- 3 times the worth of the profit obtained by the
- 10% of the annual turnover of the franchisor within the 12 months
previous the breach, if a courtroom can’t decide the worth of that
profit obtained from the breach.
Provisions attracting the utmost penalty
There are seven provisions of the Franchising Code that, if
breached, will appeal to the utmost penalty relevant to
companies. These provisions embody:
Clauses 17 (1) and (2) (Disclosure of materially
related details) – referring to the duty of
franchisors to reveal monetary statements, related paperwork,
and some other materials details to a franchisee earlier than an settlement is
entered into inside a particular timeframe.
Clause 33 (Association of franchisees or potential
franchisees) – referring to
the duty of franchisors to not limit a franchisee
(together with, potential franchisee) from forming associations with
different franchisees for a lawful function.
Clause 46A (1) – (3) (Franchise settlement should present
for compensation for early termination) and 46B (Franchise
settlement should present affordable alternative for return on
franchisee’s funding) – referring to new
car dealership agreements.
In addition, if the next sections of the Franchising Code
are contravened, franchisors will incur a penalty of 600 items
(equating to $133,200):
- Clauses 6 (4) and (5) (Obligation to behave in good
religion) – a franchise settlement or different paperwork
can’t restrict or exclude good religion obligations.
- Clause 11 (1) (Information
Statement) – the franchisor should present an
data assertion to a potential franchisee no later than 7
days after the potential franchisee formally applies or expresses
- Clause 15 (4) (Financial
assertion for advertising funds) – a monetary
assertion for advertising funds have to be offered to the franchisee
inside 30 days.
- Clause 22 (Costs of settling
disputes) – a franchisor
should not require a franchisee to pay their prices of settling a
dispute underneath the franchise settlement.
- Clause 25 (2) and (6) (Franchisor’s consent to
switch) – a franchisor should not unreasonably
revoke or withhold consent to a switch of a franchise
- Clause 27 (4) (Termination -
breach by franchisee) – a franchisor should not
terminate a franchise settlement the place the franchisee has remedied
their breach, after permitting the franchisee affordable time (no
greater than 30 days) to treatment the breach.
- Clause 29 (2) (Notice of
termination by franchisor on explicit
grounds) – a franchisor can’t terminate a
franchise settlement with out offering 7 days written discover to the
franchisee explaining their causes for the proposed
- Clause 30 (1) (Significant
capital expenditure to not be required) – a
franchisor has an obligation to not require a franchisee to incur a
important capital expense.
For data on adjustments made to the code in July
2021, seek advice from our article: Changes to the Franchising Code of Conduct you
should be conscious of.
The content material of this text is meant to supply a basic
information to the subject material. Specialist recommendation must be sought
about your particular circumstances.
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