Changes for franchises, but the wait continues

Including good faith could have "adverse commercial consequences" for franchisees, including franchisors seeking compensation for "extra risk" they faced through larger franchise fees and more onerous terms and conditions in other parts of the agreement. "And banks and other financiers would be more reluctant to provide credit to franchisees and franchisors in these more risky commercial circumstances."

http://www.watoday.com.au/
November 5, 2009

Changes for franchises, but the wait continues
Chalpat Sonti

CraigEmerson.jpg

Minister for Small Business, Craig Emerson.

The Federal Government has finally acted on the troubled $128-billion-a-year franchising industry, strengthening some laws to protect franchisees.

However, the changes, in response to a parliamentary inquiry into the industry, are sure to attract criticism from many who pushed for the reforms in the wake of several recent high-profile collapses, including Midas, Kleenmaid and EzyDVD.

They face yet another inquiry before several of the most controversial areas are dealt with.

The inquiry proposed 11 changes to the franchising code of conduct, including greater powers for the Australian Competition and Consumer Commission, a good faith negotiation provision and monetary penalties for breaches of the code.

Small Business Minister Craig Emerson today tabled the Government's response to the inquiry - and another by the Senate standing committee on economics - in Parliament.

It also took into account state inquiries in WA and South Australia, and came against a backdrop of state Labor MPs in South Australia and Queensland considering introducing state-based legislation in frustration at the time their federal colleagues were taking to respond to the federal inquiry.

Penalties of up to $1.1 million for companies and $220,000 for individuals could be imposed on anyone engaging in unconscionable conduct.

The ACCC will be able to conduct "random audits" under the code, as well as seeking redress on behalf of all franchisees who are party to an agreement.

It will also be able to "name and shame" rogue franchisors.

However, in a major blow to many franchisees, the Government has stopped short of implementing the good faith recommendation.

It argues the law in the area is still evolving and there is no single definition or standard set of behaviours that constitute the principle.

"The inclusion of a general obligation of good faith in the franchising code would increase uncertainty in franchising," the Government's response says.

Including good faith could have "adverse commercial consequences" for franchisees, including franchisors seeking compensation for "extra risk" they faced through larger franchise fees and more onerous terms and conditions in other parts of the agreement.

"And banks and other financiers would be more reluctant to provide credit to franchisees and franchisors in these more risky commercial circumstances."

Court proceedings were likely to be needed to establish any breaches.

Instead, the Government believed it was better to identify "specific franchising behaviours that would reasonably be considered to be inappropriate", and implement policies to address those.

The code would be changed to deal with end-of-term arrangements and dispute resolutions such as conduct at mediation hearings.

There would also be an "expert panel" which would hold an inquiry into what provisions could be inserted into the code to deal with matters such as unilateral contract variations, unforeseen capital expenditure, attribution of legal costs, confidentiality agreements and franchisor-initiated changes to agreements when a franchisee is trying to sell a business.

The panel would report its findings by the end of January.

http://www.watoday.com.au/business/changes-for-franchises-but-the-wait-continues-20091105-hzt4.html


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