With the end of the financial year well behind us, franchisors should have one key compliance task firmly on their radar — updating the disclosure document. It’s a yearly legal requirement under the Franchising Code of Conduct (“the Code”), and the deadline — within four months of the start of your financial year — is fast approaching.
If you’re a franchisor and you meet the criteria, you must ensure your disclosure document is current and compliant. Below, we break down what the Code says, how the 2024 amendments affect you, and some practical reminders to make the process less painful.
Who Needs to Update?
Section 21 of the Code sets out the franchisors who must update their disclosure document each year. Broadly, the obligation applies if:
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On the first day of the current financial year, you are a party to a franchise agreement; and
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You entered into two or more franchise agreements in the previous financial year, or intend to enter into another franchise agreement in the current financial year.
If that’s you, the Code requires that you update your disclosure document within four months of the first day of your current financial year. The updated version must reflect your current position and incorporate any changes to the Code since the last version.
Failure to comply attracts a civil penalty of up to 600 penalty units — so this is not a deadline to miss.
How Does the New Code Apply?
The updated Code, which came into effect in April 2024, does not significantly change the obligation to update or the circumstances in which you must do so. However, the form of the disclosure document itself has changed slightly.
That means:
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If you did not update your disclosure document in April (for example, because you have not granted any new franchises since then), your current form is now outdated and must be replaced.
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If you did update in April, unfortunately you’ll need to update again to meet your annual compliance deadline — but at least the format is correct.
Why the Disclosure Document Matters
Section 20 of the Code sets out the purpose and content requirements of the disclosure document. Its purpose is threefold:
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To give prospective franchisees enough information to make an informed decision about entering into a franchise agreement.
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To give existing franchisees relevant information when renewing, extending, or varying their franchise agreement.
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To provide current material information that impacts the running of the franchised business.
The document must follow the form and order of Schedule 1 of the Code and include any additional information under “Updates”. It must also contain a table of contents, and be signed by the franchisor or a director, officer, or authorised agent.
Financial details (Item 21) – plan ahead
Every disclosure document must include a director-signed solvency statement confirming there are reasonable grounds the franchisor can pay its debts as they fall due (21(1)). From there, you have two main pathways:
Path A – Two years of financial reports (21(2) & 21(3))
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Provide financial reports for each of the last two completed financial years prepared in accordance with the Corporations Act (or foreign equivalent).
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If you’re part of a consolidated group that is required to provide audited consolidated financials, and a franchisee requests them, you must also provide the consolidated entity’s financial reports.
Path B – Audit alternative (21(4))
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Instead of two years of financials, you may provide the solvency statement supported by an independent audit (by a registered company auditor, or foreign equivalent) within four months after the end of the financial year to which the statement relates.
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If you choose this path, items 21(2) and 21(3) do not apply.
Special cases (21(5) & 21(6))
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New franchisors (less than two financial years old): provide a statutory declaration of solvency and an independent audit report as at the date of that declaration.
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If insolvent in either of the last two years: disclose the period of insolvency, provide a statutory declaration of solvency, and an independent audit report.
If you operate a specific-purpose marketing or cooperative fund, don’t forget the extra disclosure requirements, including audited statements of collections and expenditure. In practice, we find financial disclosure and fund audits are the most common reasons disclosure updates get delayed — so plan early.
Additional Disclosure Reminders
If you give franchisees or prospective franchisees earnings information, make sure this is properly disclosed in the disclosure document in line with Item 20. That includes historical or projected earnings, assumptions, and any differences between franchise types. If you do not provide earnings information, your disclosure must say so clearly.
Don’t Forget the FDR Profile
While you’re updating the disclosure document, don’t forget your Franchise Disclosure Register (FDR) profile. This is a separate, publicly accessible record that must be updated annually to reflect current information about your network. Missing this step is surprisingly common — and a red flag to regulators.
Magnolia Can Help
Updating disclosure documents isn’t glamorous, but it’s a critical part of your annual compliance calendar. Leaving it too late can lead to rushed documents, missing information, and potential penalties.
Magnolia’s team can help you navigate the process smoothly — from reviewing your current disclosure document and updating financial sections to preparing FDR profile updates and marketing fund disclosures. Think of us as the compliance pit crew keeping your franchise engine running smoothly.
And if the thought of tackling another disclosure update makes you want to run for the hills — don’t worry. We’re here to make it as painless as possible (and maybe even crack a smile or two while we’re at it).
Ready to get started? Reach out to our team today and let’s make sure your disclosure documents — and your franchise system — are in top shape before the clock runs out.