These are unprecedented times. The impact of both the Coronavirus itself and the Government’s action to combat this health and economic crisis, have had (and will continue to have) an enormous impact on many businesses. Businesses are having to make quick and sometimes uncomfortable decisions in order to sustain themselves into the foreseeable future and franchise networks have not been immune.
The issues that each franchise network is facing will differ. Set out below are links to a number of relevant articles on key topics written by our specialty teams that may be relevant to you or franchisees in your network.
In addition, a few key points that we have recently seen come up, but which may not be at the forefront of your mind, include:
It is easy to forget some of the basic compliance obligations under the Code. Pay special attention to ensuring you continue to meet those obligations and watch the key timeframes. Many of the provisions of the Code are civil penalty provisions for which a fine or penalty apply for contravention.
In your agreements you should check to see if notice provisions contemplate service of notices by electronic means, as personal service or service on (closed) premises may be difficult. If your agreement doesn’t allow for service by electronic means, consider amending your agreement by a simple deed to change it, particularly if you are agreeing to vary any terms in any case.
To avoid missing important notices served on your registered office, check to make sure the registered office is open or consider registering a change to the registered office to a safer address with ASIC. As a general rule, PO Boxes are not usually permitted. Obviously watch out for notices served on you during this period particularly when people are working remotely.
Agreeing to suspend payments
If you are considering suspending payments for royalties or marketing fund contributions you should check that your corresponding obligations are still able to be met or are also suspended. It may be prudent to agree to a ‘standstill arrangement’ where certain rights and corresponding obligations are suspended or ‘standstill’ during this period. It is important to make sure the arrangement is clearly articulated.
Unprecedented legislative intervention in contracts
Whilst normally it is unusual, in this environment State, Territory and Commonwealth legislation is intervening in some contractual relationships. It may be necessary to reach an agreement with your landlords on what is to happen during this period. Where a bank guarantee or security deposit has been paid it is important to reach some form of standstill agreement which should also be made subject to any mandatory intervention by government.
If you are considering a ‘standstill’ on your marketing or cooperative fund arrangements, or refunding any contributions already made, it may be necessary to obtain a written agreement. In the case of a standstill, consider what the standstill will apply to, when it will end and also allow for an extension. If you are looking to refund contributions, you should ensure, before refunding, that you check the terms of your agreement on how it is to be distributed.
If you are worried about solvency issues you need to seek advice from professionals in this area. Attached below is a link to a recent article published by our insolvency team on recent changes to insolvency law. If you intend to enter into a franchise agreement (including a renewal or transfer or an agreement to extend the scope or term of a franchise agreement) then your disclosure document will need to have a solvency declaration attached. Always consider and seek advice on the application of item 21.6 and Clause 17 of the Code and what steps you have to take to comply.
Anti- competitive conduct
It is easy in this period of uncertainty to forget some basic principles. You should remind and reinforce with your staff the basic rules which are designed to prevent anti-competitive behaviour when engaging with competitors. In this environment simple discussions between representatives of companies that are competitors about what their organisations are doing in response to COVID 19 can have significant consequences.
Supply Chain integrity
Now more than ever franchisors involved in supply arrangements need to work closely with their supply chains to be vigilant in relation to continuity and the width and depth of supply and to move quickly to approve other suppliers or alternative products where normal supply is not practical. Most agreements allow for franchisees to use alternative suppliers or use substitute goods or services in circumstances where supply is not assured. You should check your rights and obligations and seek advice where it is not clear before you act.
Remember, this health crisis will take time to pass and maintaining your focus has never been more important. Focus on the key issues that affect you, your staff and franchisees. Seek advice on areas in which you are uncertain.
Extracted from HWL Ebworth Lawyers