The purpose of the Franchising Code and the regulations is to provide enhanced protection for franchisees, primarily by providing information on which to make a reasonably informed decision whether or not to invest in a franchised business as well as current information that is material to the running of the franchised business. Non-compliance with the code by a franchisor may lead to litigation being instituted by a franchisee or to official action by the Australian Competition and Consumer Commission (ACCC).

At least 14 days prior to entering into (or renewing or extending) a franchise agreement or accepting any non-refundable money or other valuable consideration, a franchisor must provide a disclosure document to a prospective franchisee.

If the franchised business is expected to have an annual turnover of $50,000 or more, a total of 23 categories of information must be supplied including:

• the fact that the franchisee will be entitled to a 7 day "cooling off" period after signing a new franchise agreement;
• details of the franchisor's business experience in the previous 10 years;
• details of any past or pending litigation;
• whether the franchise is for an exclusive or non-exclusive territory and whether the franchisor may change the territory;
• what goods and services will be supplied to a franchisee;
• details of establishment and recurring payments payable by the franchisee to the franchisor; and
• if a statement of solvency is not signed, the franchisor's financial reports for the past 2 years.

If the franchise business is expected to have an annual turnover of less than $50,000, franchisors need only provide a short form disclosure statement. The number of categories of information to be disclosed is reduced from 23 to 11 (although the franchisee has a right to request the additional information).

With the short form disclosure statement (unless requested) the franchisor is initially under no obligation to supply details of his previous business experience, the existing franchisees, goods and services to be supplied and earnings information.

Once the franchise agreement is in place, franchisors have a continuing obligation to disclose to franchisees any "materially relevant facts" affecting the franchise, such as changes in majority ownership of the franchisor, court judgments entered against the franchisor, and any changes in relation to intellectual property that is material to the franchise system.

Disputes between franchisors and franchisees are to be resolved if possible through mediation, however a mediator will now be able to terminate a mediation on the request of either part to it, if after 30 days the mediation has not solved the dispute and the mediator is satisfied that resolution is not imminent. Mediation must be held in Australia.

Small business clients are advised to seek legal advice before entering into a franchise agreement.