Franchising Code Compliance: Managing Your Ongoing Disclosure Obligations to Franchisees
- Whelan Lawyers
- Aug 13
- 7 min read
The franchise relationship depends on trust, and trust requires transparency. As a franchisor, you understand that informed franchisees make better business decisions, maintain stronger network relationships, and contribute more effectively to system growth. The Competition and Consumer (Industry Codes—Franchising) Regulations 2024 establishes comprehensive disclosure obligations, requiring proactive communication with your franchise network about material developments and operational changes.
These requirements represent both compliance obligations and relationship management opportunities. By understanding your disclosure duties, from responding to annual document requests to notifying material changes within prescribed timeframes, you can strengthen franchisee confidence while avoiding substantial penalties.
Whether you're managing an established franchise system or preparing to launch new territories, mastering these disclosure requirements protects your business interests while demonstrating the transparency that sophisticated franchisees expect from their franchise partners.
Why Disclosure Obligations Serve Your Business Interests
The Franchising Code of Conduct’s disclosure requirements reflect the evolving franchise relationship, where franchisees increasingly view themselves as business partners rather than passive licensees. This shift creates opportunities for forward-thinking franchisors to differentiate their systems through proactive communication and transparent business practices.
Regular disclosure of material developments enables franchisees to make informed decisions about territory expansion, operational investments, and renewal strategies. When franchisees understand your system's financial health, legal position, and strategic direction, they're better positioned to contribute to network growth and operational excellence. Conversely, information gaps often fuel speculation, erode confidence, and strain relationships that could otherwise flourish.
The Code's structured approach to disclosure also provides clear boundaries for your communication obligations, reducing uncertainty about what information requires sharing and when. Rather than navigating ad hoc information requests or managing rumours about undisclosed developments, you now have defined processes for maintaining transparency while protecting commercially sensitive information.
Managing Annual Disclosure Document Requests
Under the Franchising Code, franchisees may request updated disclosure documents annually, creating predictable information access points that you can incorporate into your business planning cycle. Understanding these requirements enables efficient compliance while maintaining positive franchisee relationships.
The Request and Response Framework
Under section 32 of the Franchising Code of Conduct, Franchisees can submit written requests once every twelve months for updated disclosure documents, specifying their preferred format; printed, electronic, or both. These requests may arrive at various times throughout the year, requiring systems for tracking request dates and managing response timelines across your network.
Under section 33 of the Franchising Code of Conduct, upon receiving a valid request, you must provide an updated disclosure document within two months. The document must reflect your position as at the end of the financial year preceding the request, ensuring consistency in the information provided while allowing time for financial statement preparation and audit completion.
This timing requirement balances franchisee information needs with practical business realities. The two-month response period acknowledges the complexity of updating comprehensive disclosure documents, while the financial year-end reference point ensures you're providing audited or finalised financial data rather than interim projections that might later require correction.
Strategic Preparation for Disclosure Requests
Rather than viewing annual disclosure requests as compliance burdens, consider them opportunities to demonstrate system strength and operational transparency. Proactive preparation reduces response times and ensures consistent, professional document presentation across your network.
Establish annual processes for updating your standard disclosure document following each financial year-end, incorporating material changes that occurred during the reporting period. This approach enables prompt responses to franchisee requests while ensuring all network members receive consistent information about your system's performance and position.
Consider the commercial messaging embedded in your disclosure updates. Financial improvements, successful legal resolutions, and operational enhancements can reinforce franchisee confidence in your system's direction, while challenges can be presented within the context of strategic responses and risk management initiatives.
Proactive Material Change Disclosure Requirements
Beyond responding to annual disclosure requests, under section 34 of the Franchising Code of Conduct, you must proactively notify franchisees about specific material developments as they arise. These obligations ensure your network remains informed about circumstances that could impact their investment decisions or operational planning.
Financial and Legal Development Notifications
The Franchising Code Compliance requires notification of various legal proceedings, regulatory actions, and financial developments within reasonable timeframes, generally not exceeding fourteen days after you become aware of the circumstances. This includes proceedings alleging franchise agreement breaches, Competition and Consumer Act contraventions, unconscionable conduct, or criminal charges involving dishonesty.
When multiple franchisees initiate legal action against your system, specifically when at least ten percent of your Australian franchisees or ten franchisees (whichever is lower) commence proceedings, disclosure becomes mandatory. While such circumstances represent significant challenges, transparent communication often prevents speculation and demonstrates your commitment to addressing legitimate concerns through appropriate legal processes.
Significant unsatisfied judgments also trigger disclosure obligations, with thresholds set at $100,000 for small proprietary companies and $1,000,000 for larger entities. These amounts focus disclosure requirements on financially material judgments while avoiding notification burdens for minor disputes or technical breaches.
Structural and Operational Changes
Changes in majority ownership or control of your business, associated entities, or franchise system require franchisee notification. These structural modifications can significantly impact system direction, operational policies, and strategic planning, making early communication essential for maintaining franchisee confidence and planning alignment.
Intellectual property changes present particular disclosure challenges given their central role in franchise value. Modifications to trademark ownership, licensing arrangements, or usage rights directly impact franchisee operations and future prospects. The Code requires disclosure of intellectual property changes that are "material to the franchise system," creating judgement calls about significance and commercial impact.
When ownership or control changes involve your intellectual property assets, consider how these modifications might affect franchisee territorial rights, brand usage permissions, or ongoing royalty obligations. Early communication about intellectual property transitions often prevents misunderstandings and maintains operational continuity during ownership changes.
Insolvency and Financial Distress Communications
Perhaps the most sensitive disclosure obligations involve financial distress circumstances, including appointment of external administrators, controllers, liquidators, or restructuring practitioners. While these situations represent significant challenges, transparent communication often enables better outcomes for all stakeholders.
The Code requires providing appointed professionals' contact details, enabling franchisees to make direct inquiries about administration processes and potential impacts on franchise operations. Rather than allowing rumours and speculation to circulate, direct communication channels help maintain network stability during difficult periods.
Consider developing template communications for potential financial distress scenarios, ensuring consistent messaging while allowing customisation for specific circumstances. Professional advice becomes particularly important during these sensitive periods, both for managing disclosure obligations and developing strategies for network preservation.
Practical Implementation Strategies
Successfully managing these disclosure obligations requires systematic approaches to information monitoring, decision-making processes, and communication protocols. Implementing robust systems prevents compliance failures while supporting stronger franchisee relationships.
Information Monitoring and Decision Systems
Establish regular review processes for identifying material developments requiring disclosure. Legal proceedings, financial judgments, ownership changes, and intellectual property modifications don't always trigger immediate recognition as disclosure events, particularly when they emerge gradually or involve complex commercial arrangements.
Consider monthly management reviews that specifically address potential disclosure triggers, involving legal, financial, and operational team members in assessment processes. Document these reviews to demonstrate systematic compliance approaches and support decision-making rationales if disclosure timing becomes contentious.
Develop clear criteria for assessing whether developments meet disclosure thresholds, particularly for subjective requirements like intellectual property changes that are "material to the franchise system." Consistent application of defined criteria reduces compliance uncertainty while ensuring appropriate disclosure of genuinely significant developments.
Communication Protocol Development
Create standardised communication templates for different disclosure scenarios, ensuring consistent messaging while allowing customisation for specific circumstances. Professional presentation reinforces your commitment to transparency while maintaining appropriate tone for sensitive information.
Consider the communication sequence for material change notifications. Direct communication to franchisees should generally precede broader public announcements, demonstrating respect for your franchise relationships while managing information flow appropriately. However, regulatory requirements or market disclosure obligations may sometimes require simultaneous or prior public communication.
Establish feedback mechanisms for franchisee questions following material change disclosures. Significant developments often generate inquiries that require thoughtful responses, and your handling of these communications influences network confidence and relationship quality during challenging periods.
How We Can Help With Franchising Code Compliance
Our franchise practice provides comprehensive guidance for franchisors navigating these disclosure obligations. We assist with developing compliance systems that meet regulatory requirements while supporting positive franchisee relationships and operational efficiency.
Our services include designing information monitoring processes, creating disclosure document updating procedures, and developing communication protocols for material change notifications. We help you implement systematic approaches that reduce compliance risks while positioning transparency as a competitive advantage in franchise recruitment and network management.
We also provide ongoing support during specific disclosure situations, from complex legal proceedings to ownership transitions, ensuring appropriate compliance while protecting your commercial interests and network relationships.
Ready to strengthen your disclosure compliance framework? Contact our franchise legal team to develop systematic approaches that protect your business while enhancing franchisee relationships.
Frequently Asked Questions
Question: What penalties apply if we fail to provide requested disclosure documents within the required timeframe?
Answer: Non-compliance with disclosure document requests attracts penalties of 600 penalty units. More significantly, failure to meet these obligations can damage franchisee relationships and potentially support claims for misleading conduct or breach of good faith obligations under your franchise agreements.
Question: How do we determine whether intellectual property changes are "material to the franchise system" and require disclosure?
Answer: The materiality test focuses on whether the changes could reasonably influence a franchisee's assessment of their franchise investment or operational decisions. Changes affecting brand usage rights, territorial exclusivity, or ongoing licensing arrangements typically meet this threshold, while minor administrative modifications may not require disclosure.
Question: What should we do if we're unsure whether a particular development requires disclosure to franchisees?
Answer: When facing uncertainty about disclosure requirements, seek professional legal advice. The Code's materiality thresholds and disclosure triggers can involve complex judgements, particularly for developments that may impact the franchise system but don't clearly fall within specific categories. Professional guidance helps ensure compliance while avoiding unnecessary disclosure of commercially sensitive information that doesn't meet regulatory requirements.
Disclaimer: This article provides general information only and is not legal advice. The law is complex and varies based on individual circumstances. You should seek specific legal advice about your particular situation before making any decisions about legal matters.
