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 dive in and make a commitment, it’s crucial to carefully consider all the elements involved.

Following on from our recent article about misleading or deceptive conduct, we take a look at the case of Lanhai Pty Ltd v 7 Eleven Stores Pty Ltd [2022] VSC 132, which involves allegations of misleading and deceptive conduct about the term of the franchise agreement.

Misleading or deceptive conduct is the most commonly reported complaint by small business to the ACCC. While these complaints will not all relate to franchising issues, misleading or deceptive conduct complaints in franchising are common.

The last two and a half years have been tough for small businesses including franchises.

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 Federal Government has substantially changed the Information Statement to be provided to prospective franchisees as part of the pre-disclosure process. It has also clarified that the Information Statement must be given before the other documents given to a prospective franchisee (14 days before a prospective franchisee enters into a franchise agreement).

The Franchising Code of Conduct (the Franchising Code) was amended on 1 June 2021, with most amendments applying from 1 July 2021, including the Exit and Termination amendments.

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

A right of renewal in a franchise agreement is a right which gives you the option to "renew" the franchise agreement at the end of the term. [What is a franchise agreement?].

Not all franchise agreements contain a right of renewal.

Even if your franchise agreement contains a right of renewal you may not want to renew the franchise agreement.