13/08/2009 - 00:00

Code of conduct under review

13/08/2009 - 00:00


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MAJOR reform to the franchising sector could follow the release of a federal government inquiry into the industry's code of conduct.

Code of conduct under review

MAJOR reform to the franchising sector could follow the release of a federal government inquiry into the industry's code of conduct.

The inquiry was launched within weeks of the collapse of the Kleins chain last year, with a parliamentary joint committee on corporations and financial services examining ways to improve the code.

The four broad areas of reform being examined are: the impact on franchisees of franchisor failure; insertion of a good faith requirement; the rights of franchisees at the end of franchise term arrangements; and establishment of a registration system for franchisors and collection of data about franchising.

The Western Australian government undertook an inquiry into the fairness of franchise agreements in April 2008, and a month later the South Australian parliamentary economics and finance committee tabled a report on the efficacy of the laws regulating the franchisee-franchisor relationship.

Franchise Council of Australia chief executive Steve Wright said while the collapse of Kleins in 2008 and Kleenmaid this year highlighted areas of concern when a franchise failed, the Kleenmaid franchise model was "peculiar" and should not be the catalyst for industry reform.

He said Kleenmaid's parent company, which was the manufacturer of the goods, used the majority of franchisees as sales agents, and paid them commissions, while some franchisees were service agents.

Ultimately, when the company failed, those to whom it owed a sales commission, and had not yet paid, were left out of pocket and most franchises were unable to continue operating.

"And they called that a franchise?" Mr Wright told WA Business News.

"It's the only one I've ever heard of like that. The franchisees became creditors in a collapsed company, which is unusual in a franchise model.

"An advantage of franchising is, if there's a material change to the business, the franchisees must be informed; it's written in the code, but usually they can continue to trade even if the parent company is in trouble."

It's believed secured creditor Westpac is owed $27 million, Kleenmaid's trade creditors and suppliers are owed about $16 million, and $2 million is owed to landlords.

Small Business Minister Craig Emerson said franchising was a successful working arrangement and should not be put at risk by legislative changes.

"Sometimes relationships between franchisors and franchisees break down," Mr Emerson said.

"Yet most franchise arrangements work well and these good working relationships must not be jeopardised by the reforms."

Franchise Alliance of WA state manager, Mark Fernandez, said the federal government's review was understandable, as thorough investigation was needed before any amendments could be legislated.

"The franchise industry's code of conduct is, and has been, the subject of rigorous evaluation since it came into play in 1998 and as time progresses, more amendments are likely to occur.

"It has proven to be a sensible and balanced suite of regulation that has improved transparency and legitimacy with the sector and thousands of franchisees are better off for it."


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