Commonwealth Parliamentary Joint Committee on Corporations and Financial Services Inquiry into Franchising
On 5 November 2009, the Australian Government tabled its response to the Commonwealth Parliamentary Joint Committee on Corporations and Financial Services (Joint Committee) franchising inquiry report (.pdf, 112KB).
The Government has also issued a joint media release on the Government’s response to the Joint Committee’s franchising inquiry report, and Government response to the Senate Standing Committee on Economics inquiry report into the 'The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974'.
As part of its consideration of the broad policy issues identified in the Joint Committee’s franchising inquiry report, the Government also prepared an accompanying Regulation Impact Statement (RIS) (.pdf, 278KB).
On 1 December 2008, the Joint Committee tabled its Report – 'Opportunity not opportunism: improving conduct in Australian franchising' (.pdf, 1.34MB) in Parliament. The Joint Committee made 11 recommendations for improving conduct within the sector. These recommendations can be broadly grouped into five categories:
- Increasing franchisor disclosure and improving due diligence by franchisees; (including end of agreement arrangements)
- Including a good faith obligation within the Franchising Code
- Granting the ACCC greater enforcement powers (pecuniary penalties and audit powers for the ACCC where suspected breaches of the Code)
- Future review of the Franchising Code
- Improving dispute resolution.
To assist the Government's consideration of its response, a consultation paper (.pdf, 61KB) was also released. Written comments to all or part of the consultation paper closed on 10 July 2009.
The Government is currently progressing amendments to the Franchising Code to give effect to the reforms outlined in its response.
Expert Panel
In its response, the Government noted that support for the inclusion of a good faith obligation in the Franchising Code has generally been motivated by specific issues that arise during the term of a franchise agreement such as non-renewal, unforeseen capital expenditure and unreasonable unilateral variations to the agreement. As such, the Government response undertook to establish an expert panel to inquire into, and report on, the need to introduce into the Franchising Code additional provisions that prevent specific behaviours which are inappropriate in franchising.
On 27 November 2009, the Minister for Small Business, Independent Contractors and the Service Economy, the Hon Dr Craig Emerson MP announced the establishment of an expert panel on franchising and unconscionable conduct consisting of Professor Bryan Horrigan, Mr David Lieberman and Mr Ray Steinwall due to their well acknowledged expertise in various aspects of trade practices law.
The panel will consider the merits of a number of proposals for enhancing the provisions of the law that protect small businesses from anti competitive behaviour by powerful and unscrupulous businesses. To view the expert panel’s terms of reference, click here.
The panel is to report to the Government by the end of January 2010.
Background
The Franchising Code of Conduct (Franchising Code) (.pdf, 316KB) is a mandatory code that is prescribed under the Trade Practices Act 1974. The purpose of the Franchising Code is to regulate the conduct of participants in franchising towards other participants in franchising. Broadly, it achieves this by requiring franchisors to disclose specific facts to franchisees and to follow set procedures in their dealings with franchisees.
The Australian Competition and Consumer Commission (ACCC) is responsible for the administration and enforcement of the Franchising Code.
The Australian Government funded Office of the Mediation Adviser assists franchisors and franchisees resolve their problems and disputes through mediation, which is often a less costly option to going to court.
Review of the Disclosure Provisions of the Franchising Code of Conduct
In 2006, a committee led by Mr Graeme Matthews, National Managing Partner of KPMG Middle Market Advisory announced a review into the disclosure provisions of the Franchising Code (Matthews review). The Matthews review was prompted by a number of concerns by franchisees with the operation of the Franchising Code. Mr Matthews was supported by a team from Corrs Chambers Westgarth and a secretariat from the former Office of Small Business.
The terms of reference for the Matthews review were:
- The Committee is to review the current operation of Part 2 - Disclosure of the Franchising Code of Conduct
- The Committee is to identify, where justified, possible amendments that could improve the disclosure provisions of the Franchising Code of Conduct.
On 31 October 2006, the Committee released its final Report (.pdf, 610 KB) (Matthews Report). On 6 February 2007, the former Government issued its response to the Matthews Report (.pdf, 60KB).
The Department also prepared a Business Compliance Cost (BCC) assessment (.pdf, 30KB) of the cost to business of complying with the Franchising Code amendments after receiving the Matthews committee recommendations.
Following the release of the former Government’s response to the Matthews Report, regulations were made to amend the Franchising Code. The amendments to the Franchising Code came into effect on 1 March 2008 and are aimed at increasing the transparency, quality and timeliness of disclosure of information by the franchisor to existing and prospective franchisees.
The ACCC has produced a Franchising Code of Conduct Amendments fact sheet to assist franchisors and franchisees in understanding their obligations under the Code. The fact sheet is available on the ACCC website.
For further information on any of the above, please email the Industry and Small Business Policy Division.