Disclosure of a franchisor's financial circumstances

Rules about disclosing financial information

The Franchising Code of Conduct has specific requirements for when and how to disclose financial information.

Franchisors must tell franchisees and potential franchisees about their financial position at specific times.

Before a potential franchisee signs

Before a potential franchisee signs, the franchisor must give them current financial information.

If a franchisor’s financial details change after they’ve given a disclosure document to potential franchisees, the franchisor must give the potential franchisee a copy of the new financial information before they sign a franchise agreement.

New financial information includes:

• a solvency statement
• financial reports, and
• an independent auditor’s report.

When a franchisor is giving earnings information

If a franchisor is going to give a franchisee or potential franchisee earnings information, the franchisor must give it in:

• the disclosure document, or
• a separate document attached to the disclosure document.

When this occurs, the franchisor must provide the earnings information 14 days before a franchise agreement is signed.

If the franchisor is not providing earnings information, they must tell franchisees at Item 20 of the disclosure document.

A solvency statement once a year

Franchisors must update their solvency statement when they update the disclosure document. Franchisees can see the solvency statement by requesting a copy of the disclosure document from the franchisor.

Most franchisors must update the disclosure document every year. This includes updating their financial information under Item 21 of the disclosure document. Franchisees can request a copy of an updated disclosure document once a year. 

Franchisors must provide:

• a signed solvency statement that reflects the franchisor’s position at the end of the last financial year, signed by at least one director
• financial reports for the past 2 financial years or an independent audit report about the franchisor’s solvency prepared by a registered company auditor.

Different reporting requirements apply if the franchisor was insolvent in either or both of the last 2 financial years.

Financial information that the franchising code says is ‘materially relevant’

Franchisors must tell franchisees about financial information that the code says is ‘materially relevant’.

If it is not already mentioned in the disclosure document, franchisors must tell franchisees in writing and within 14 days of becoming aware of the event, if they:

• go into administration
• go into liquidation
• have a receiver appointed
• execute a deed of company arrangement.

The code considers these events to be materially relevant facts for franchisees to know.