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Upcoming changes to the Franchising Code of Conduct

In August 2020, the Government released its response to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the operation and effectiveness of the Franchising Code of Conduct report: Fairness in Franchising.

The response outlines a number of changes that will be made to the Franchising Code of Conduct (Code) which include the following:

  • Cooling Off/Disclosure Period – the Code will clarify that the cooling off and disclosure periods are measured in calendar days and clarify that the 14-day disclosure period must begin at least 14 calendar days before signing a Franchise Agreement
  • Cooling Off – cooling off rights will be extended to the transfer of an agreement to a new franchisee and where the franchisee enters a substantially new agreement with the franchisor (a deemed transfer) but not to renewals or extensions
  • Early Termination – the Code will allow a franchisee to terminate the Franchise Agreement at any time up to 14 days after the last of certain events have occurred, such as:
      • the agreement being signed;
      • payment being made;
      • disclosure documents being received; and
      • a copy of the terms of the lease having been received (if applicable)
  • Format – Disclosure Document and Franchise Agreement must be made available in both electronic and hard copy format
  • Information Statement (Annexure 2 of the Code) must be provided to prospective franchisees separately and prior to providing the Disclosure Document and other disclosure materials
  • Legal fees – the Code will prohibit (and have pecuniary penalties for) franchisors passing on the legal costs of preparing, negotiating and executing documents to the franchisee (except where it is already incorporated into a joining fee)
  • Lease – clause 13 of the Code (“Copy of lease”) will be amended to require a franchisor’s interests in a leasing arrangement to be disclosed in a new Key Disclosure Information Fact Sheet
  • Penalties for Breaches Doubled – penalties for a breach of the Code will be doubled
  • Financial Information – any financial information provided must be part of the Disclosure Document, which must include a statement on the accuracy and appropriateness of the franchisor’s financial information
  • Significant Capital Expenditure – the Code will:
      • prohibit franchisors from requiring franchisees to undertake significant capital expenditure, except where it has been disclosed before  entering into a Franchise Agreement, is legally required, or is agreed to by the franchisee during the term
      • introduce an obligation to discuss expenditure prior to entering into a Franchise Agreement
      • require disclosure of the circumstances under which the franchisee is likely to recoup the expenditure
      • require franchisors to specify the amount, timing and nature of the expenditure (as practically as possible)
  • Dispute Resolution Processes introduce conciliation and voluntary binding arbitration. The Code will also clarify that, if the person conducting the dispute resolution process determines it is appropriate to conduct a multi-party process, the franchisor cannot refuse to take part in that process
  • Supply Arrangements require franchisors to disclose more information on supplier rebates, commissions and other payments and to disclose any master franchisor controls and/or rebates from suppliers
  • Marketing Funds clarify requirements relating to the treatment and reporting of marketing funds and introduction of penalties for breaches of clauses that relate to the use of marketing funds
  • Exit Arrangements ensure end-of-term arrangements for franchisee goodwill are clearly specified in the Disclosure Document and clarify a franchisee’s entitlement to goodwill in the Franchise Agreement
  • Termination clause 29 of the Code will be amended to require the franchisor to provide the franchisee with 7 days’ notice of a proposed termination in special circumstances (e.g. for fraud or public health and safety), so that a mediator or arbitrator can assist the parties to negotiate
  • Restraint of Trade technical changes will be made to clause 23 regarding the effect of restraint of trade clauses in Franchise Agreements (if the agreement is not extended)

A new mandatory Key Disclosure Information Fact Sheet will be introduced containing information taken from the Disclosure Document and highlighting key information, obligations and risks associated with entering a particular Franchise Agreement (such as financial information to assist prospective franchisees in assessing the time that they will need to commit to the business, franchisee entitlement to goodwill etc)

Information Statement

The Information Statement (Annexure 2 of the Code) will be updated to include the following information:

  • Encourage prospective franchisees to refer to the Disclosure Document to see if a franchise system has a high turnover of sites (to look out for possible ‘churning and burning’)
  • Outline risks with estimating labour costs, particularly for greenfield sites
  • Place an obligation on prospective franchisee to obtain information about employment matters and compliance with employment law
  • Clarify that if the franchisor becomes insolvent, the prospective franchisee may lose the benefit of shared funds (such as marketing funds)
  • Warn prospective franchisees of the need to obtain advice about restraints of trade before entering the agreement
  • Prospective franchisees will be made aware of the use of ‘no agent’ and ‘entire agreement’ clauses

If you require specific advice regarding the content of your Franchise Agreement or would like us to review your franchise documents, please contact us at enquiries@tanglaw.com.au.

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empty-pockets-no-money

FAMILY LAW: How To Prevent Your Ex-Partner from “Emptying Your Pocket”?

FAMILY LAW: How to Prevent Your Ex-Partner from “Emptying Your Pocket”?

After separation, it is common that one of the partners may do all sorts of things to defeat any legitimate claims that the other partner may have in relation to his/her assets, including selling or transferring the assets to overseas or hidden it somewhere without trace. In some extreme cases, a partner may decide to spend or waste all the liquidated assets after separation, not for commercial reasons but to do it simply as retaliation.
The question many people frequently ask is how to prevent this from happening, before it is too late.  In a situation like this, applying for injunction in the Family Court is usually the answer. An injunction is a court order to stop someone from doing something or, in some situations, to make someone doing something.
For property issues, you can get an injunction to stop your ex-partner from selling, mortgaging or otherwise dealing with a property. If the property has already been sold or the asset in question is cash, it is possible to obtain an order to ‘freeze’ bank accounts or an order to seize the cash or any valuables. Interestingly, there was a case in the Family Court in which the wife had successfully obtained a court order to seize a black leather briefcase belonged to the husband based upon the reasonable belief that the husband had kept substantial amount of cash in that briefcase – In the Marriage of Mazur (1991) 15 Fam LR 574.
In appropriate situations, the Family Court can also make orders and injunctions that affect third parties including for example an order to stop a trustee to deal with superannuation entitlements or an order to prevent a bank from selling a house.
An injunction under the Family Law Act is available to both married and divorced people, as well as to parties in a de facto relationship, including same-sex relationship.  Typically, an injunction application is made on an urgent and ex-parte (meaning that it is made without any notice to the other party) basis. If the matter is particularly urgent, it is possible that the Family Court will hear your application on the same day when you filed the application, sometimes even outside usual court hours. If the application is ex parte, your ex-partner will not know anything about it until after the orders are made by the Family Court, which is designed to prevent the ex-partner from doing anything that may frustrate your claims while you are waiting for the court to hear your application.
Once an injunction is granted and while it is still valid, your ex-partner will be given the opportunity to challenge it. If your ex-partner files an application to oppose the injunction, the Family Court will hear the story from both sides and make a determination as to whether the injunction should remain. However, it is often that the purpose of stopping the ex-partner from taking any drastic actions about his/her assets is achieved by that time.

The key in an injunction application is usually timing. You are racing against time and sometimes if you acted a little too slow, you may forever lose the opportunity to stop your ex-partner from siphoning the assets beyond your ability to trace it. For this reason, if you have any concerns that your partner or ex-partner may be doing something in secret about the family assets, you need to act now before it’s too late.

About the Writer

Kelvin Tang

Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing family law advice to clients, making divorce applications and applying for Consent Order. Kelvin is able to offer his clients clear and practical advice in relation to children’s disputes, property settlements between married and de-facto couples, spousal maintenance and child support.

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business-visa

Can Property Investment be an “Eligible Business” for Business Visa in Australia?

Can Property Investment be an “Eligible Business” for Business Visa in Australia?

I am often asked by new and perspective business migrants on whether they can invest in property for the purpose of satisfying the Australian Business Visa requirements.  The good news is that it is possible. Investment in property may [emphasized] meet the migration requirements.  
 
I must emphasize 2  important points: (1) Passive investment (and more specifically, provision of rental properties to the public) and smaller “project” based property development will NOT meet the migration requirements; and (2) Even if the migrant’s proposed business in property investment meets the State’s guidelines in bringing in substantial and exceptional benefits and thus obtained nomination by the State or Territory, this itself does NOT automatically mean that the Commonwealth migration requirements are met.  
Under the Commonwealth migration regulations, a business migrant must satisfy three (3) conditions under the Act: (1) The business proposed or carried on by the migrant must be an “eligible business”; (2) The migrant must have obtained a substantial ownership interest in the eligible business; and (3) The migrant must actively participate at a senior level in the day-to-day management of the eligible business.  If the migrant fails to satisfy these requirements, the Minister may cancel the visa.  Hence, business migrant, please BEWARE!
This article briefly examines the “eligible business” requirement.   In the case of Zhonghua v Minister for Immigration and Citizenship (BC201102754), the migrant, holder of sub-class 132 Business Talent visa, invested AUD$3,000,000 into a property development project. There were submissions by the migrant that application to re-zone the property was made to develop apartments.  However, the Tribunal found that the investment did not pass the initial stage of purchasing the land.  No actual development has taken place other than owning the land and making application to re-zone the land.  For this reason, it cannot be described as a business.  As such, the migrant’s investment did not satisfy the “eligible business” definition. However, what is important from this case is that in the judgment, the following comment was made by the presiding Senior Member, Mr Egon Fice: “… if the development proceeds, it might satisfy the eligible business definition in that it might create or maintain employment in Australia or result in commercial activity and competitiveness within sectors of the Australian economy.”
 
Further, under the case law, the test of what constitutes an “eligible business” requires more than just satisfying the conditions under the migration regulations.  The Courts require that the business has repetitiveness of activities and some permanence characteristicsPuzey v Commissioner of Taxation [2003] FCAFC 197.
For the professionals who assist business migrants with their investment (such as migration agent, accountant, and real estate agent), you should find this article beneficial or at least relevant.   Australian Courts have strict expectations that the requisite standard of care is met and professionals could be found personally liable for negligence or wrongdoing if the standard is not met.  Here is a thought:  What do you need to do (or must not omit to do), in order to meet the requisite standard of care? 
 
For businesses seeking investment capital from the business migrant (for instance, property development company), beware of “representations” (such as statements and forecasts) that you make to the investor, buyer or migrant.   If your representations are subsequently found to be false, even if it was not your intention to lie, you can be liable for damages for having engaged in “misleading or deceptive conduct” under the Consumer Act.  This is a huge exposure to liability. 
 
There are also cases where migrants have failed the “substantial ownership” requirement due to technical difference between legal ownership interest and beneficial interest.   The ownership structure of the project company is extremely important.  My next article will examine the ownership issue in more details.

Writer:

KELVIN TANG is the Principal Partner of Tang Law.   His areas of practice include Investment Law, Commercial and Corporate Law, Property Law and Immigration Law.  Relevant to this article, his expertise, knowledge and experience include representing property developers and new migrants with acquisition of property, structuring of investment vehicle, joint venture transaction, and advice on commercial transactions.
Email:                     KT@TangLaw.com.au     
Telephone:           +618 9328 7525