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Proposed Changes to the Franchising Code of Conduct – Details-stage Regulation Impact Statement

On 2 April 2014, the Minister for Small Business released for consultation an exposure draft of amendments to the Franchising Code of Conduct ('the Code') and relevant provisions in the Competition and Consumer Act 2010 ('the CCA'). The amendments build upon the recommendations of the independent review of the Code by Alan Wein in 2013. The details-stage Regulation Impact Statement (RIS) prepared by the Treasury examines several problems with franchising in Australia. These include unnecessary obligations on franchisors preparing and updating agreements, inability of franchisees to understand complex agreements, inequitable situations during insolvency, onerous contractual terms and questionable behaviour such as bullying or unreasonable demands. Proposed changes to the Code in response to these identified problems include: requiring franchisors and franchisees to act in good faith, simplifying disclosure in multi-tiered franchise systems, allowing for the imposition of civil penalties for breaches of the Code and requiring franchisors to provide prospective franchisees with a generic information statement. The changes are estimated to add $430,000 and remove $9 million of regulatory costs per year to industry. The primary beneficiaries of the reduced regulatory costs will be multi-tiered franchise operations and the largest regulatory costs will come from franchisors seeking legal advice to ensure their agreements and practices are consistent with acting in good faith. The details-stage RIS concludes that overall the Code is operating effectively and that the size of the problems identified are not large. The proposal has been assessed as likely to have a minor impact on the broader economy with minor impacts on competition and has therefore given this a ‘C’ rating (on a scale of A to D) in relation to the level of analysis required. The OBPR notes that as no decision has been previously announced, an options-stage RIS was not required. The details-stage RIS was prepared and certified by the Treasury and approved by the OBPR, under the July 2013 Australia Government best practice regulation requirements.