The April 2025 Changes to the Franchising Code of Conduct
Peter Snelgar
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The April 2025 Changes to the Franchising Code of Conduct
Part One
This article was originally intended to be a brief summary of those changes to the Franchising Code of Conduct (“the Code”) that were introduced on 1 April 2025. During our review of these changes, with a little breathing room in time, it was quickly decided that at least two parts would be required to give proper justice and thought to the amendments to the Code.
Though we say “amendments to the Code”, this new Code is, essentially, a remake, being able to be differentiated before and after with certainty due to a new numbering system, order of topics and changes extending beyond the more usual ‘addition of sub-sections approach’.
This first part will concentrate on those changes that we believe are largely aimed to increase protections for franchisees for specific circumstances that have come to pass since the initial implementation of the Code. These circumstances may not have initially been planned for or anticipated, and upon their happening may have caused an imbalance of power necessitating redress.
The next of our articles on the topic will detail some of the changes to mechanics and the logistics of documentation and accounting principles for franchisors.
Restraint of Trade
By way of the new Section 42, a franchisor is now prohibited from entering into a franchise agreement that contains a restraint of trade provision that would apply if a number of provisos are met, but essentially, if the agreement contained an option to renew or extend the agreement and the franchisor did not renew or extend the agreement.
This is a particularly specific addition to the Code and does feel as a reaction to a factual circumstance having occurred where a restraint of trade was used in a less than conscionable manner.
This new Section 42 applies to all franchise agreements that were entered into, transferred renewed or extended on or after 1 April 2025.
Early Termination Compensation
The new Section 43 is relevant to all franchise agreements that are not new vehicle dealership agreements.
By way of Section 43(2), franchisors are prohibited from entering into a franchise agreement unless the agreement provides for the franchisee to be compensated if the agreement is terminated before it expires because the franchisor:
- Withdraws from the Australian market;
- Rationalises its networks in Australia; or
- Changes its distribution models in Australia
The agreement must specify how compensation is to be determined, with specific reference to:
- Lost profit from direct and indirect revenue;
- Unamortised capital expenditure requested by the franchisor;
- Loss of opportunity in selling established goodwill; and
- Costs of winding up the franchised business
Pursuant to the new sections 43(3) and (4), franchisors are prohibited from entering into a franchise agreement unless the agreement requires the franchisors to buy back or compensate the franchisee for specific equipment or items purchased by the franchisee, in the event the franchise agreement is terminated before its expiry date under certain circumstances. These specific items and equipment are:
- Outstanding stock purchased by the franchisee that was specified by the franchisor and required to operate the franchise; and
- All essential dedicated equipment and branded product or merchandise purchased by the franchisee that was specified by the franchisor and required to operate the franchise, and that cannot be repurposed for a similar business.
There is a grace period for franchisors in the implementation of these provisions, with them applying to all franchise agreements that are entered into, transferred, renewed, or extended on or after 1 November 2025.
Reasonable Return on Investment
An interesting new provision is that contained in the new Section 44. Again, with a grace period and applying from 1 November 2025.
This Section provides a positive obligation that a franchisor must not enter into a franchise agreement unless that agreement provides the franchisee with a reasonable opportunity to make a return, during the term of the agreement, on any investment required by the franchisor as part of entering into, or under, the agreement.
What the extent of this obligation emplaced on franchisors is, naturally, yet to be tested.
Moving Forward
As always, complex contractual agreements are not a one size fits all situation, all contracts have their own nuances and specificity and individual legal advice should be sought by experienced practitioners prior to entering into any new commercial agreement, particularly franchises.
Disclaimer: This article is for general understanding and should not be used as a substitute for professional legal advice. Any reliance on the information is strictly at the user's risk, and there is no intention to create a lawyer-client relationship from this general communication.
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So you have a debtor owing funds that have remained outstanding for months, and they have now gone completely silent. Engaging CJM Lawyers may be the next step in the right direction towards recovering your funds. Step 1: Final Demand Engaging a solicitor to issue a final letter of demand can sometimes be the first and last step in debt recovery. A solicitor will review the dispute, assess the strength of your claim, and issue a formal demand on your behalf through multiple channels, placing the debtor on clear notice of the seriousness of the matter. At this stage, most debtors will either pay the outstanding amount or re-engage in communication. When a debtor remains unresponsive, this can be frustrating; however, it is often simply the beginning of a structured recovery process. Step 2: Commence Proceedings Depending on the amount of the debt, commencing legal proceedings may be the next appropriate step where a debtor becomes unresponsive. We will help you assess the commercial viability of commencing proceedings based on a variety of factors including: debt amount; debtor responsiveness; the debtor’s assets and location; and timeframe for recovery. To commence proceedings, your solicitor will prepare a Claim and Statement of Claim and file these documents in the relevant Court. The complexity of the matter, as well as the supporting evidence available, will influence the framing of the claim, ranging from straightforward breaches of contract to more complex causes of action. The costs of commencing proceedings should always be considered and discussed with your solicitor to ensure the recovery action remains commercially viable. Once filed, the documents must be served on the debtor: for a company, service is typically affected by posting to its registered office; for an individual, a process server is engaged to affect personal service. Step 3: Default Judgment Once served, the debtor has 28 days in the Queensland courts to file and serve a Notice of Intention to Defend. In cases involving a silent debtor, no response is often received. After the 28-day period expires, your solicitor can apply for default judgment without the need for a court hearing. Once judgment is entered, you have six years to enforce the judgment debt. Step 4: Enforcement There are various avenues available to enforce judgment debt. If the debtor’s financial position is unknown, a Statement of Financial Position may be served, requiring them to disclose relevant financial information and documentation to assist in determining the most appropriate enforcement pathway. If they fail to comply, an enforcement hearing may be listed, at which the debtor’s attendance is compulsory. Failure to attend can result in serious consequences, including a warrant for arrest to attend the hearing. Where the debtor’s financial position is known, enforcement may proceed through several mechanisms, including bankruptcy proceedings, warrants for seizure and sale of property, redirection of debts, or garnishee orders against earnings or bank accounts. Your solicitor will assist in determining the most effective enforcement strategy based on the circumstances. Conclusion If your debtor has gone silent, it is not the end of the road for recovery. Seeking legal advice can help you assess the most appropriate recovery pathway, weighing up cost, risk, and commercial viability. It is always important to remember that litigation is inherently volatile and engaging a solicitor will help you assess the costs and benefits of this recovery route. Speak to our Litigation and Disputes Team at CJM Lawyers today, and we will work with you to determine the most effective course of action to recover your funds.
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