As a franchisee, it is important to be aware of the financial health of your franchisor.

While there are certain pieces of information that must be included in the franchisor disclosure document, access to detailed information about a franchisor’s finances may be limited. This can leave you vulnerable if your franchisor suddenly becomes insolvent.

In this article we will discuss why it’s important as a franchisee to stay informed about your franchisor’s financial standing and what rights you have should your franchisor become insolvent.

Overview of Franchisor Insolvency

Rights and obligations arising from Franchisor Insolvency

Administration and Liquidation arising from Franchisor Insolvency

Marketing Funds

Takeaways

Are you thinking of buying a franchise? It’s an exciting proposition that can bring both rewards and risks. Before you make a commitment, it’s crucial to carefully consider all the elements involved.

It is a well established principle of Australian law that businesses that illegally exploit their employees can face serious penalties under the Fair Work Act 2009 (Cth) (“Fair Work Act”). It should therefore be unsurprising that franchisees who have engaged in behaviour that illegally disenfranchises their workers can be subject to penalties from the Fair Work Commission.

The ACCC announced on 6 October 2022 that it had issued Jim's Group Pty Ltd with two infringement notices and that Jim's Group Pty Ltd had paid $24,420.00 in penalties.

The infringement notices related to an alleged failure to comply with the Franchising Code of Conduct and an alleged failure to comply with the Australian Consumer Law. 

We have set out below a number of the approaching Key Franchise Dates, related primarily to a franchisor's end of financial year reporting and disclosure obligations. 

On 1 April 2022 the Franchising Code of Conduct (the Franchising Code) was amended to insert a new clause 53 which sets out the requirements for the Franchise Disclosure Register.

[What is the Franchising Code?]

The Franchising Code of Conduct (the Franchising Code) sets out the obligations (including annual obligations) relating to advertising and marketing funds operated by a franchisor.

The long awaited dispute resolution provisions under the Franchising Code of Conduct (the Franchising Code) came into force on 2 June 2021.

In Part 1 of our series "Can I Franchise my Business?" I covered crucial factors such as branding, consistent business systems and maintaining uniformity.