23/07/2008 - 22:00

Governments review sector

23/07/2008 - 22:00

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The federal government is expected to complete its review of the franchising sector by the end of the year, following a state government inquiry into the sector handing in its final report in April.

Governments review sector

The federal government is expected to complete its review of the franchising sector by the end of the year, following a state government inquiry into the sector handing in its final report in April.

South Australia recently finalised its inquiry into the sector, paving the way for what could be the biggest reform to Australia's franchising industry yet.

It has been less than a year since former federal Small Business Minister Fran Bailey introduced changes to boost transparency in the franchising code of conduct, which came into effect in March this year.

WA's latest review was spawned after a dispute between Jack Cowin's Competitive Foods, worth an estimated $350 million, and KFC owner Yum Restaurants International highlighted a loophole in the law, which meant franchises across Australia could be deprived of the goodwill they build in their business.

Yum is refusing to renew licences for all of Competitive Food's 46 KFC outlets in WA; but, such a move is legal under Australian law because franchises are not afforded automatic right to licence renewal under the industry's body of conduct.

Mr Cowin was forced to close a KFC franchise in Rockingham, with subsequent closures of other outlets throughout the state expected as more franchise licences come up for expiry.

Mr Cowin said in each case, Yum, which also owns the Pizza Hut brands, failed to recognise goodwill established over 30 years.

The WA and SA reports have called for a more stringent disclosure regime, greater involvement by the Australian Competition and Consumer Commission and a strengthening of unconscionable conduct laws in the Trade Practices Act.

Small Business Development Corporation's Di Graham said the WA inquiry called for the concept of "good faith" to be introduced into contracts.

"According to the report, there is currently no uniform acceptance within Australian jurisdictions of a coherent, separate legal concept of good faith in contract law," she said.

Former Dymocks franchisee Chris Bothams, who headed up the WA inquiry, found while most franchises systems throughout the state operated "within the spirit and intent of the franchising code", questions had emerged relating to the adequacy of existing laws protecting the interests of franchisees.

"The code serves the industry well, however, issues raised in submissions made to this inquiry reveal that further improvements to the Australian franchising operating environment are not only desirable but also necessary," he said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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