Disclosure documents need to be updated annually and businesses must provide their current information by the end of October 2013. While many franchisors tend to wait until the last minute to finalise the update, in 2013, there are a few issues to be aware of - which could mean you start this job earlier than usual.

In 2010 there were a number of changes made to the format of the franchising disclosure document, including some new sections to be completed, commencing from 1 July 2013. These new sections are items 17A.2 (unilateral variations) and 17C.3 (significant capital expenditure) of the Annexure 1 template disclosure document and they must now be answered with respect to any franchise agreement entered into after 1 July 2013. Most franchisors would have responded ‘not applicable’ or similar, previously, but now consideration should be given as to a substantive response.

At the same time, care needs to be taken to ensure that all the other material is as current and as relevant as possible. This includes the details of associates and officers of the franchisor, the numbers of franchise units and franchisee details.

At any time a disclosure document is provided, franchisors need to be certain that it is compliant. At a minimum, the details in clause 18 of the Code must be up to date, and, if there has been a change since a disclosure document was prepared, additional disclosure is required.

Always remember that the disclosure document is intended to inform and must not mislead. If you give an out of date disclosure document in which, for example, the previous CEO or a retired director is shown as still in his or her position, you need to ask yourself: could this be misleading to a potential franchisee? If the director was the founder of the system, or someone who gave certain credibility to the business in the eyes of the prospective franchisees, then the fact that they are no longer a part of the business may be a critical factor in their decision making process.

The case involving SPAR Supermarkets and one of its franchisees, last year, showed the risk of providing technically compliant disclosure without taking care of the obligation not to engage in misleading and deceptive conduct. A great deal has been written about the impact of this case on disclosure procedures.

SPAR had given the franchisee a disclosure document on 21 July 2010. The disclosure document provided contained the financial details of the 2009 (rather than the 2010) financial year, as it had not been updated after 1 July.
 
While, arguably, this may not be a breach or otherwise have been significant, the Franchise Agreement between the parties was not executed until 6 months later on 1 February 2011.  The Franchisee argued that SPAR failed to comply with its obligation under section 6B(1) of the Code to provide the Franchisee with a 'current disclosure document' and that this failure was significant, as the financial position of SPAR's corporate group had deteriorated significantly from 2009 to 2010. The Franchisee said that it would not have entered into the Franchise Agreement, if it had been provided with current financial statements and reports containing this information. The Court agreed and held that SPAR was required to create and provide the franchisee with a disclosure document that reflected ‘current and reliable financial information’ as at the time the franchisee was contemplating entering into the Franchise Agreement.

It was also held that the requirement to update a disclosure document within  four months of the end of a financial year does not supersede the requirement to provide a 'current' disclosure document.

Whether a disclosure document is a 'current disclosure document' will depend upon the particular circumstances; always bearing in mind that the purpose is to give the prospective franchisee the ability to make an informed decision about whether or not to enter into the franchise. Franchisors need to do their best to provide up to date information and this might include additional information to franchisees to update disclosure information previously provided or which is not current.

For assistance with updating your disclosure document to the current legal requirements please contact partner Corinne Attard  at Holman Webb Lawyers.