At the recent National Franchise Convention 2011, Dr Michael Schaper, Deputy Chairman of the ACCC, presented on the ACCC’s new powers of investigation in connection with industry codes, such as the Franchising Code of Conduct (Code).

Dr Schaper explained the changes in the law but more importantly, shed light on how the ACCC will approach the use of their new powers and their general role in overseeing the franchising sector. Some of Dr Schaper’s insights are summarised below.

Criteria for prioritising investigations

Dr Schaper revealed that the ACCC receives around 200,000 contacts each year, which means that the ACCC needs to prioritise the complaints it chooses to pursue. Some of the factors that the ACCC will use to assess a complaint include the public interest value in pursuing the matter, the detriment suffered by the consumer, the blatancy of the conduct in question and whether pursuing the matter will have a deterrent effect within the sector.

Investigation powers

When introduced early this year, the Competition and Consumer Act 2010 (Cth) included a new section 51ADD. The new section gives the ACCC the power to compel a franchisor to provide information or produce documents that it is required to keep under the Code.

This will typically include current and past disclosure documents, disclosure document receipts, professional advice statements, franchise agreements and marketing fund audited accounts. The franchisor must provide the requested documents to ASIC within 21 days of the notice, unless granted an extension by the ACCC.

Triggers for use of the investigation power

Dr Schaper told the National Franchise Conference that the ACCC intends to undertake five audits every month. In considering which franchise systems to target, the ACCC will focus on franchisors with a history of non-compliance, a large volume of complaints or in industry sectors which appear to have general compliance issues.

Dr Schaper responded to concerns by the franchising sector by inviting the Franchising Council of Australia (FCA) legal committee to submit queries regarding the use of the audit powers to the ACCC.  We will keep you updated on the ACCC’s response to the FCA queries.

Tips for franchisors

The ACCC’s newly acquired investigation power makes it even more critical for franchisors to comply with the Code. In particular, franchisors must diligently maintain all required records. All relevant records must be well organised and easily accessible so that franchisors can provide documents to the ACCC within the 21 days of receiving a notice under section 51ADD.