Franchise inquiry report tabled, welcomed by ARA

Posted by Editorial on 2nd December 2008

Peak retail industry body the Australian Retailers Association (ARA) has welcomed the Joint Committee on Corporations and Financial Services’ report on the inquiry into the Franchising Code of Conduct tabled in parliament yesterday.

Chair of the Parliamentary Joint Committee on Corporations and Financial Services, Bernard Ripoll, flagged two major changes to the Code.

“To assist the Australian Competition and Consumer Commission in its enforcement role, the committee recommends the introduction of pecuniary penalties for code breaches,” he advised. “Such penalties would act as a deterrent to unacceptable conduct. The committee also recommends enhancing the ACCC’s proactive investigative powers in relation to potential breaches of the code.”ARA Executive Director (former CEO of the Franchise Council of Australia) Richard Evans claimed the parliamentary report was the third report for the year that suggested the franchise sector was strong, healthy and provided an opportunity for retailers to expand their brand.

“Firstly, I congratulate the Committee for the rigorous way they approached the Inquiry, seeking balance through the many sources of informed experts within the sector,” he said. “With 52 per cent of all franchising systems sitting in the retail market, franchising provides a major opportunity for Australian small business retailers to enter and expand in the market. The result of this Inquiry, as well as SA and WA inquiries earlier this year, only validates the strength of Australia’s franchising sector.”

“The Committee’s eleven recommendations confirm the sector has no major systemic issues but provide clarity and enforcement to franchisee / franchisor rights and obligations under the existing Code,” he added. “In particular, the ARA welcomes the recommendation that the Franchising Code of Conduct be amended to require franchisors to clearly disclose the processes that will apply in determining end of term agreements to franchisees. We also support the idea to provide weight to the Franchising Code of Conduct by introducing penalties and sanctions for breaches. However, we question whether this will be extended to other breaches of the Trade Practices Act (TPA). The recommendations provide little definition for acting in good faith other than what is already available in section 51AC of the TPA.”

“Businesses fail – that is true – but it’s not the Franchising Code of Conduct that lets them down,” Mr Evans continued. “Pre-entry education for franchisees; ensuring franchisee due diligence and certifying consultants who provide advice to sector would go a long way to mitigate franchisee failure. However, the Committee’s report provides little advice on these issues.””The franchise sector is a strong sector and the Committee’s report on the Inquiry into the Franchising Code of Conduct only validates that proposition,” Mr Evans concluded.