Peter Hendy (Eden-Monaro, Liberal Party) Share this | Link to this | Hansard source

I rise to support the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. I do not intend to speak for very long because I just want to make a few points. This bill is a significant advancement on the existing laws regarding franchising. As the Minister for Small Business stated in his second reading speech introducing the bill, the purpose of this bill is to enable the government to include civil penalty provisions in a forthcoming new franchising code. He noted that a breach of civil penalty provisions will expose a franchisor or franchisee to an infringement notice issued by the ACCC or a pecuniary penalty imposed by the court.

As I have previously told the chamber, as a former chief executive of the Australian Chamber of Commerce and Industry, I know a bit about this topic and I am well aware of the difficult balancing act that government regulation—rightfully, I might add—has to play in the relationship between franchisors and franchisees. Indeed, further to that I was personally involved in the introduction of the Franchising Code of Conduct, which was introduced by the Howard government in 1998. In 1998 I was the Chief of Staff of the Minister for Small Business. I was involved in a lot of the negotiations and know how difficult this area can be.

The franchising sector has been the subject of eight reviews at either the federal or state level over recent years. The last was an independent review by Mr Alan Wein in 2013. As the Wein review summarises it:

The Code is a prescribed, mandatory industry code under Part IVB of the CCA—

The Competition and Consumer Act. The report states:

Broadly, the Code requires franchisors to disclose specific facts to franchisees and to follow set procedures in their dealings with franchisees. The Code also provides a cost effective dispute resolution scheme for franchisors and franchisees.

The coalition government recognises that the franchise industry is a significant and growing part of the small business sector. A recent Griffith University survey indicated that franchising contributed more than $130 billion to the national economy and employed over 400,000 Australians. There are over 70,000 franchise business arrangements in Australia today.

The difficulty in dealing with regulation in this area is highlighted by the fact that there have been those eight reviews. This has created a high level of review fatigue and in moving forward in light of the recent review we are very cognisant of that fact. Indeed, the coalition government is committed to generating certainty in the sector and strengthening the effectiveness of the franchising code.

Mr Wein's 2013 report stated, 'We have a good franchise industry model in Australia,' but nonetheless recommended some reforms. Thus Mr Wein made 18 substantive recommendations in relation to the code and the Competition and Consumer Act 2010, which is the renamed Trade Practices Act 1974. He also recommended about 24 technical amendments to improve and clarify the code rather than change the underlying policy. He was examining issues such as good faith in franchising, the rights of franchisees at the end of the term of their franchising agreement, and provisions for enforcement of the code. The government has been considering those recommendations in coming to its conclusions.

Importantly, the Wein review also concluded that there was widespread industry support for introducing pecuniary penalties to deter breaches of the Franchising Code. Of course, the question of pecuniary penalties for breaches of the code has been considered many times in the past. The government believes that this will promote better practice in franchising, which will in turn make the sector more attractive to investors, both locally and internationally. It is an example of the government's pragmatic and balanced approach to industry regulation.

It also highlights our abiding commitment to support small business. That is vital to my electorate of Eden-Monaro. Eden-Monaro is a predominantly rural seat and as such it is heavily dependent on small business for jobs. The provision of sustainable jobs is the No. 1 issue in my electorate, along with cost-of-living pressures. We believe that these reforms will support the creation of jobs and small business in regional and rural Australia.

The key part of this bill is to allow for the introduction of penalties to give teeth to the Franchising Code. Substantial penalties of up to $51,000 will apply. However, while the bill will allow the potential for penalties in other industry sectors, it will not apply to other industry codes unless separate policy and regulatory action is taken to specifically introduce penalties under those codes.

The minister has noted that this bill is the first step in a new era of regulation for the franchising sector. The bill is part of the government's comprehensive package of reforms to improve the way the franchising sector is regulated, and we will bring forward a new Franchising Code of Conduct to be progressed later this year, subsequent to the passage of the bill that we are discussing today. The new code will enhance and update the current code and will introduce an overarching obligation for parties to a franchising agreement to act in good faith in their dealings with each other. This is something that many of those in the franchising community have been calling for over many years. It will provide a mechanism to deal with the diversity of issues that often stem from the unique interdependent relationships in franchising.

As the minister stated, the term 'good faith' under the code will have the same meaning as in common law, but we will be providing some guidance for participants around what might be considered good faith. These measures go to the heart of strengthening business relationships and will underpin the wider reforms that we are making to the franchising regulation. It is expected that the new Franchising Code of Conduct will be finalised soon and will take effect from 1 January 2015.

I conclude by noting that, under the last Labor government, 519,000 jobs were lost in small business, while the number of employing small businesses declined by 3,000. When Labor came to government, small business employed some 53 per cent of the workforce. It is now just 43 per cent. That is a devastating blow to small business. Do not forget that most franchise businesses are small businesses. In the end, the story is very simple: we highly value the franchising industry. As a result we have been going through the issues in a purposeful and methodical manner. We will get it right and will provide for a sustainable and strong franchising sector. I commend this bill to the House.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. It is a great pleasure to follow the member for Eden-Monaro, who has such wide knowledge in this particular area. I would like to briefly talk about the franchising sector. There are currently 73,000 business units employing over 400,000 Australians, with estimated sales of $131 billion annually. It is an enormous section of our Australian economy. Here we are introducing a bill to improve that section.

How many speakers do we have from the opposition on this? A duck egg. Not one single member of the opposition here in this parliament today is prepared to speak on this bill about an important franchising sector. It is a sector of the economy that employs 400,000 people, and we cannot get one single speaker from the opposition. I think that says it all.

But we have seen this during the past six years. As the member for Eden-Monaro correctly said, we saw the small business sector in this country shed 518,000 jobs. I will say that again: 518,000 jobs. If you are at the MCG and you look up and there are 100,000 people there, you see enormous, vast crowds. To think that, under the previous Labor government, we could have filled that MCG five times over with the number of people from small business who lost their jobs and still have 18,000 people left over!

But, really, is it any wonder, when we look at what we were served up under the previous Labor government? There was a revolving door of small business ministers who did not have a clue about the subject that they were talking about. We had the good Dr Emerson, an economist and public servant. We had Mr Nick Sherry; his background was as a state secretary of an employees' union. Then of course there was Senator Arbib; his background was as the general secretary of the Australian Labor Party, and he was from the good old New South Wales Sussex Street branch. Then we had Mr O'Connor, whose background was as the assistant national secretary of the Australian Services Union. The current member for what used to be Prospect was an industrial officer for the Finance Sector Union and a ministerial adviser. And it goes on. Now we have the current opposition leader, who is now the spokesman for small business—though we hardly hear him mention the words—whose previous background was as the national secretary of the Australian Workers Union. So is it any wonder that, under the past six years of Labor government, those small business ministers seemed to think that their job was to make small business smaller? And they succeeded remarkably.

So now the coalition is proud to have, in Minister Bruce Billson, a minister for small business, in cabinet, actually getting on with the job and trying to get small business moving again. Just look at some of the things we have done in the short 12 months that we have been in office.

We have repealed the carbon tax, because the carbon tax was probably one of the things that hurt small business the most. That is gone. But we need to be ever-vigilant on that point, because we know that, should Labor ever come to power again, as sure as night follows day, that carbon tax will be coming back and they will be smashing small business with it; it will be the small business sector that will pay.

We have also established the $484 million Entrepreneurs' Infrastructure Program which will provide practical support for businesses, including advice for people with relevant private-sector experience, and small co-contributions for re-engineering or regrowth opportunities for business.

We will provide an additional $304 million over four years to boost wage subsidies for mature-age job seekers, to get those mature-age workers with all that experience back in the workforce. I am sure that a lot of small businesses will be taking that up.

Most importantly, we have started the root and branch review of our competition act. That is an act that, under the previous six years of Labor government they said was—and they say now is—all fine, and that nothing needed or needs to be done. We need to look at that act seriously. We also know that the old section 46 of the Trade Practices Act on the misuse of market power is simply not working. We are seeing more and more concentration in industry, in almost every sector of the economy, squeezing out small business because of anticompetitive practices that are allowed here in Australia under our laws but would not be allowed to occur under the laws in other countries. And that is harming the most innovative, productive sector of the economy—the small business sector, which we need to provide those jobs in the future.

We have made changes to the tax thresholds, saving small business $56 million a year in red tape. We have also put money back into the ACCC so that they can actually run cases and look after the interests of small business. We saw the previous government basically let the ACCC's funding run out, because they had simply run out of money. Despite the difficult budgetary situation, we have put an extra $80 million into a funding boost to the ACCC so that they can actually get on and do their work.

Also important for small business is the export market development awards. It is most important to encourage small business to go out there and tackle that international economy. After all, over 98 per cent of the world's economy is beyond our shores. Small business has to look not only in Australia but also beyond our borders—especially to those growing areas of China, South-East Asia and India—to see what products we can sell to them. That is what we want to encourage our small business sector to do. We have also removed $48 million worth of red tape burden from small business by removing the burden on small business to have to be the pay clerk for the Paid Parental Leave Scheme.

Of course, with this bill, we are working to improve the franchising sector. The franchising sector does need some regulation because of the information imbalances—or information asymmetries, as they are often called—where the franchisee does not have the same information as the franchisor. Back in 1998, the previous coalition government brought in an industry code, and if you were setting up a franchise system you had to provide that code and certain disclosure documents to a potential franchisee. But one of the weaknesses of this code—and it has been developing and it will need further development as we go—is that if you broke the code there were no penalties involved.

This bill brings in a pecuniary penalty for breaches of the code. The penalty will be 300 penalty units, which is currently $51,000 maximum. I think this is a fair balance. People who want to use their money to go into a franchise system need to be sure that the person running that franchise is doing everything correctly, that they are acting in good faith and that, if they break the code, there is some mandated penalty. This should reinvigorate our franchising system throughout Australia and should give encouragement to people to actually take on a franchise and go into business and take those risks.

One of the big areas of concern for franchising, especially, in the retail sector, is the cost of retail rent in Australia. That is where a lot of disputes and business failures arise from. Fortunately, the Treasurer asked the Productivity Commission to undertake an inquiry into the relative costs of doing business in the retail sector in Australia. The Productivity Commission handed down an interim report, as at June 2013, which had some quite concerning information.

Firstly, the Productivity Commission did an international comparison of the costs of running a retail business in Australia. Why that is probably more than ever is that, in the past, we were almost like an island continent but today, with the internet, people can by fashion, books, clothing and many different products over the internet from overseas retailers. So like never before in our nation's history, our retail sector is actually competing with retailers overseas. We need to ensure that our retail sector and our Australian retailers—many of whom are in franchising—are internationally competitive. If they are not, they will lose business and the nation will lose business, lose employment and lose innovation.

The Productivity Commission's inquiry found a bit of good news. It found that the cost of rent for our supermarket sector is less than the cost of rent in the United Kingdom and the USA. That should be good news for consumers, but it still does not explain the reason that, when you go to a supermarket in Australia, you pay a higher price for a jar of Vegemite, which is made in Australia, than you would pay if you bought that same jar of Vegemite in the UK or in New Zealand. It does not explain why the price of Coca-Cola—probably the most basic supermarket staple in everyone's shopping trolley—is so much higher in Australia than it is elsewhere in the world. An excuse that has been given previously is that the cost to operate these supermarkets in Australia is much higher. But that excuse no longer holds up.

It is also concerning when we look at the comparison the Productivity Commission has done with respect to the clothing and fashion retailing sector. The Productivity Commission found that, on average, if you are a fashion retailer here in Australia, the cost of your rent is almost three times higher than it is for a retailer in the UK and the USA. That simply means that you have to have higher retail prices, which are paid for by the consumer.

Although I am glad that the Treasurer got the Productivity Commission to go ahead and look at this, back in 2007, before I came to this place, I put together a paper along similar lines, called International retail rent comparisons: are Australian retailers at an international competitive disadvantage? In that paper in 2007, I detailed how occupancy costs and rents in Australia are three to four times higher than in comparative countries, whether we look at Europe, the USA, Canada or even Japan. This is something that we need to address.

One of the great problems we have and the reason why this occurs is our local zoning laws. We have been trying to protect some of our large retailers from competition and shopping centres from our zoning laws. As when the government interferes in the market, when it puts those artificial restraints in, it distorts the market. The result is that our retail rents in Australia are three times higher than in the rest of the world. The ultimate victim of that? Yes, it is those small business people in the franchise sector. But the ultimate victim is the Australian consumer. If we do almost any international price comparison, the Australian consumer is paying far too high a price for the goods in retail shops in Australia.

This is a problem we must address, as I said previously. With the advent of the internet and the growing amount of online sales, we have to address this because we have to make our Australian retail sector competitive, and the way to do that is to allow the forces of the free market to operate. We simply cannot interfere to try and protect inefficient retail centres and retail shopping centres. We must allow people to set up new businesses, to establish new businesses, because that is the only way we can bring these retail rents back to the true market price. If we do an international comparison of office rents, our office rents are very similar to those in the rest of the world and in fact lower on a city-to-city comparison with the USA. But, when it comes to retail rents, we are out of step. That is harming our franchising sector. It is harming our consumers. These are some of the issues we have to address. I have great faith in our minister for small business, and these issues will be addressed, hopefully, in that root-and branch review of our competition policy.

The bill before us today, the Competition and Consumer Amendment (Industry Code Penalties) Bill, takes an important step towards strengthening our franchising sector. It will strengthen the relationship and the trust between the franchisor and the franchisee, introducing the provision that they both act in good faith and bringing in penalties for a breach of the code. This will strengthen the sector, it will strengthen small business, and I commend the bill to the House.

Fiona Scott (Lindsay, Liberal Party) Share this | Link to this | Hansard source

I rise in support of the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. This amendment bill introduces a new franchise code of conduct into the Australian business sector. The franchise industry is a critical pillar of the small business community, particularly within retail, and includes amazing brands that we all know and love. Battery World, Gloria Jean's, McDonald's, Hungry Jack's, Subway, Hairhouse Warehouse, Pie Face, OPSM, Total Tools, Boost Juice, Grill'd, Bakers Delight, Terry White Chemists and Laser Clinics are just some of the brands that all Australians know and use every day of the week. All too often, it is these brands that fill our urban shopping centres, our high streets or even Queen Street in St Marys, and are local icons within the retail and shopping sector in Australia.

According to the NSW Business Chamber, 90 per cent of franchise businesses are in fact Australian and most franchise businesses are small businesses. So many Australians dream of owning and running their own small business. Often, when you talk to them about this dream, it involves a franchised coffee shop or a franchised clothes shop—a franchise where they think they can have autonomy, running their own life and running their own business.

My upbringing was no different to many other types of families. My family started their own business in 1936.

When a large multinational business decided to come into our area, in fact, to directly challenge my father's business and the life of our family,— our family home was mortgaged against the business—my father went with 10 other local businesses across the Sydney basin and started his own franchise. This franchise grew from being just a Sydney basin to right across Australia and then, eventually, into New Zealand. The business he started was, of course, the Auto One business. My experience within the franchise sector is not unique. It was through the Auto One business that we were able to compete with Federal Mobil at the time, hold onto our business. The business still exists to this day as does the Auto One group, although we have now sold the business on.

This sector has such great capacity. It has great capacity of nurturing small businesses. It has great capacity of our entrepreneurial community binding together, working together, being competitive against some of the multinationals. Today the franchise businesses in Australia number some 73,000, and employ over 400,000 Australians producing a sales turnover in excess of $131 billion annually. In fact, Australia is one of the most heavily franchised countries per capita in the world.

Since its introduction in 1998 the franchising code of conduct has been reviewed many times—eight times in fact. When the Howard government introduced this important piece of legislation it was to regulate the conduct of participants in franchising towards other participants in franchising. As the Minister for Small Business identified upon introducing this legislation in July, the code is now 16 years old and in the minister's words is beginning to look its age. This is why the coalition government is introducing a new franchising code, one that simplifies and modernises the way franchising is legislated, one that fulfils our election commitments to refine the franchising code, to strengthen its effectiveness, improve its responsiveness to the sector's unique commercial characteristics and tensions and also to guard against additional state based regulation.

The new code of conduct aims to strike the balance between the needs of franchisors and franchisees while understanding the unique nature of the relationship between them. We want to promote growth in this sector, reduce red tape and make sure all participants in the industry follow best practice principles. The reforms will give the ACCC greater flexibility in how it enforces the franchising code to encourage increased compliance and reduce disputes within the sector. Further, they will result in an estimated compliance saving $8.6 million annually for the sector.

In 2013 Mr Alan Wein conducted the most recent review of the franchising code. This independent review involved comprehensive stakeholder consultations across the franchising community and found that there was widespread industry support for introducing pecuniary penalties to deter breaches of the franchising code. The coalition welcomed the Wein review and its recommendations and at the time stated that it was a useful roadmap to franchise reform. Building on the recommendations and the strong feedback from stakeholders, in April 2014, this government took swift action to develop and release exposure drafts of the bill and the new franchising code for public comment. Feedback on the proposed reforms was very positive and received widespread support across the sector.

The ability to include civil penalty provisions in the franchising code is a key component of the reform package. The Competition and Consumer Amendment (Industry Code Penalties) Bill 2014 will facilitate a change to the way the franchising code of conduct is enforced by amending the Competition and Consumer Act to, firstly, allow regulations to be made that prescribe a pecuniary penalty not exceeding 300 penalty point units for a breach of a civil penalty provision of an industry code and allow the industry regulator, the Australian Competition and Consumer Commission, to issue an infringement notice where it has reasonable grounds to believe a person has contravened a civil penalty provision of an industry code.

These measures will more effectively deter breaches of the code and enhance the enforcement tools available to the ACCC, by allowing it to take rapid action when breaches of the code do occur. This will facilitate greater compliance across the sector and may assist in reducing the number of protracted, costly disputes. This better practice in franchising will in turn make the sector more attractive to investors both locally and internationally.

The bill sets the limit for pecuniary penalty for contravention of an industry code at 300 penalty units, currently $51,000. The amount of an infringement issued by the ACCC for the code breach is 50 penalty units, $8,500, for a body corporate and 10 penalty units, $1,700, in any other case. The new code will also: improve disclosure by including the introduction of a short, easy-to-understand information statement for prospective franchisees; cut red tape by clarifying and streamlining provisions; improve the transparency of marketing funds; make franchisors more accountable to franchisees and required to pay for significant capital expenditure; and, finally, offer protections to franchisees by limiting, in a fair and balanced way, the enforceability of restraint-of-trade clauses at the end of a franchise agreement in special circumstances.

I am very passionate about this legislation, not just because of my family business background but because I also have had the privilege of working for Westfield, at Westfield Penrith, which was a post-acquisition development and rebranding of a billion-dollar shopping centre, and I met pensioners, or people who had just retired, who had taken their entire super and dumped it into a franchise. These were people that invested their whole future in getting that Donut King or that Gloria Jean's up and running. These are the people we need to protect. We need to make sure that they have the best possible go. These provisions will help so many of these businesses. They will help these businesses to be so much more competitive. We need to protect small business in this country. We need to protect the employment that small business creates. I commend the bill to the House.

Ewen Jones (Herbert, Liberal Party) Share this | Link to this | Hansard source

I have got some text I need to read first, and then I would like to make some comments, so bear with me, because the first bit is a bit dry. I rise to speak on the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. The amendments in this bill form part of the government's election commitment to refine the franchising code. The bill outlines the government's franchising policy reforms and builds on the 2013 Wein review, including: ensuring that franchisees and franchisors act in good faith—and that is the key term in these things and I will be speaking a little bit more about 'in good faith'—in their dealings with each other; introducing penalties for breach of certain provisions of the franchising code; improving the transparency of marketing funds; improving disclosure by including short-form, easy-to-understand information for prospective franchisees; and cutting red tape by clarifying and streamlining the Franchising Code of Conduct, reducing unnecessary and sometimes unclear provisions.

The coalition promises to reduce red tape for business. Tony Abbott's plan is to build a strong, prosperous economy. Small business owners told us that red tape was harming business across Australia. I see that in my electorate all the time. This government will ensure the franchise industry has the support it needs to flourish. That is why, before the election, we said we would refine the national franchising code. We want to promote the growth in the sector. We want to reduce red tape and we want to make sure all participants in the industry follow best practice principles. The government has also committed to guard against separate and additional state regulations.

We are the government helping small business, not hindering it. Just as an aside, I think that having a stand-alone Minister for Small Business in cabinet, under the Treasury portfolio, is a huge statement to the business community. I know there are a few complaints around the country about where our priorities lie in relation to portfolios, but I think it makes a massive statement to the people of small business that it is not just an adjunct to another portfolio. In my time in the parliament, we have had the one person in that portfolio. Bruce Billson takes this thing very seriously. When he speaks about the pillow talk of having to fill out the BAS and that sort of thing when he speaks to you in your electorate, you know that he has been there.

In relation to being a friend of small business: I think we have to get down to what we actually have done so far. We have axed the carbon tax and we have scrapped 50,000 pages of red tape, saving over $700 million this year. The government has committed to saving $1 billion each year. Josh Frydenberg, as the member for Kooyong and Parliamentary Secretary to the Prime Minister in relation to red tape, is in charge of this repeal. We are having a second repeal day—it is coming up. The first one was a tidy-up of the books, if you like. What we are looking for a practical examples of where we can help business and get rid of that red tape, making sure that we are not ceding an area where a state government or a local authority can come in and crib some money back. So we are making sure that business will be protected on the way through.

We have implemented a dedicated small business support line, which has had over 100,000 calls in just eight months. Small business operators are now able to rely on advice from the Fair Work Ombudsman without fear of prosecution should the information provided by the Fair Work Ombudsman be incorrect. We have developed a 'Your First Employee' guide to help time-poor business to understand what to do when they hire their first employee.

The first franchising code was brought in by the Howard government in 1998 with the idea to regulate the conduct of participants in the franchising industry. Despite many reviews, the code is fraying at the edges and needs to be reviewed. The former government commissioned an independent review by Mr Alan Wein in 2013. The report found from evidence received that there was widespread industry support for allowing a court to impose a pecuniary penalty for some breaches of the code. But despite the then government supporting this and despite the then government asking for the report, Labor just failed to act. They failed to implement any policy before the last election. Labor once again left the work of the heavy lifting for the coalition.

Every speaker on this side has made the comment that under Labor 519,000 jobs were lost in small business. We faced the GFC and banks—everything like that—made it very hard for small businesses. But at the end of the day, it does not matter what the circumstances were: the facts speak for themselves—519,000 jobs lost. That is the challenge for us to get back.

The Abbott government supported Mr Wein's recommendations to make more flexible enforcement options available to the ACCC. Following the recommendations from the 2013 Wein review and ongoing consultations with the franchising sector, the government has committed to ensuring franchisees and franchisors act in good faith in their dealings with each other. We are use to the term 'in good faith' and we hope that the common law meaning of 'in good faith' is held as a central principle to these negotiations.

Currently, the Competition and Consumer Act 2010 does not allow pecuniary penalties to be imposed for a breach of the industry code. Nor does it allow the ACCC to issue an infringement notice in respect of a contravention of an industry code. The amendments will allow regulations to be made for a pecuniary penalty not exceeding 300 penalty points or $51,000 for a contravention of the industry code. The ACCC will be able to issue an infringement notice to the amount of 50 penalty points, or $8,500, if the person is a body corporate, and 10 points or $1,700 in any other case.

Franchising gives the public access to recognisable international and Australian brands. It is a great way for people—as the member for Lindsay was saying—who do not really have a business background to get a business model that works. That is the beauty of it. That is why you pay the fees to get into a franchise. It is not about starting something from scratch but taking someone else's business model which has been proven to work and you try to make it work. That is the value of a franchise. So each party to a franchise agreement must act towards the other in good faith in respect of any matter arising under or in relation to the agreement of the franchising code.

A franchisor must provide a disclosure statement in the form set out in the franchising code to a franchisee or prospective franchisee and within the time frame set out in the clause.

A franchisor must provide a franchisee with an annual financial statement for marketing and for other cooperative funding, along with a disclosure document following a written request. A franchisor must give a franchisee reasonable notice where it proposes to terminate the franchisee agreement for breach and give the franchisee a reasonable time to remedy the breach. A franchisor must give a franchisee reasonable written notice where it proposes to terminate the franchise agreement and the reasons for the termination.

The hard part about all this is that a franchise agreement between a franchisee and a franchisor is pretty much like a marriage. There has got to be a lot of trust, and when there is trust between people who are not married to each other and there is money involved, there is a lot of tension there and this is where you need to get in—and I know the member for Hughes was jumping up and down about this as soon as he was elected in 2010, he has been speaking to me about franchising agreements.

The pressure to get the thing working and to start seeing an income leads people to try and reinvent the wheel. This is a two-way street: this is not just the franchisor cutting corners and getting the money and running; this can be the franchisee reinventing the wheel, moving away from that business model and not committing to the formula. We have to ensure that both parties act in good faith, that both parties understand the pressures that are involved here and work towards a great resolution.

There are 73,000 businesses employing over 400,000 people in Australia contributing in excess of $131 billion annually. The number of business franchisors has grown over the last four years, a period that spanned the peak of the global financial crisis. In contrast, the broader small business sector is recovering more slowly from the GFC.

When people are talking about banking to me, they say that getting money out of banks for small business is incredibly difficult. The banking regulations, the systems they use, the pressures they put on small business to perform and the interest rates they are charging for small business loans are very, very tough and onerous. There has been constant criticism in newspapers and journals in relation to the way the banking system has worked.

In my seat of Herbert in the City of Townsville, there are over 11,000 small businesses. Townsville has a very strong small business sector. We need to back small business and support the people who are willing to lose it all to get ahead. That is the thing: to go into business—I was never in my own business; I never had a ticker but I was also very, very aware of my strengths and weaknesses. I am a very good manager of somebody else's business, but I know my weaknesses when it would come to running my own business. I was never prepared to risk my house, my family's future and that sort of thing on that prospect.

Townsville has a very small business sector, but we need to back small business and support the people who are willing to lose it all to get ahead. We have a diversified economy in Townsville, and that is under threat. Retail and franchising in particular is a major employer, and we need to make sure they have got that there.

These amendments will deter breaches of the code and enhance the work of the ACCC by allowing it to act, if a breach occurs. The government's changes strike the right balance between the needs of the franchisors and franchisees that reflect the unique nature of the franchise relationship. This will promote better franchise in business and will also make the sector more attractive to investors. The government must get out of the way of small business and get their hands out of their pockets.

Franchising is not easy. I have always said, with free trade agreements, that Minister Robb has been able to score. There are too many people in this world who think that with a free trade agreement, we just have to sit back once we have signed the agreement and the money will just keep rolling in. It is the same with a franchise: signing up for a franchise is the start of the hard work. It is not the end of the hard work. Deciding which franchise you want to be in is the beginning. After that comes a lot of hours, a lot of organisation and a lot of commitment. As the member for Lindsay was saying, people retiring from wage-earning businesses where they were not in business for themselves can find it a very, very rude shock of just how much work is required to run a franchise, a small business.

A friend of mine is an accountant and he does transitions when people get their superannuation. He says that, quite often, people will come and see him and say, 'We have got some money here and we want to invest in a business. We want to be able to work a couple of days a fortnight; be able to write our travel off to tax; and make $100,000 to $200,000 each on the way through.' Troy then leans across the table and says, 'If you think that business exists, do you really think that I would be here talking to you?' Those sorts of businesses do not exist.

All businesses require a lot of hard work to get them up and running. That is what the franchise arrangement is. The franchisor has to act in good faith to make sure that they are picking the right person to go into that business and that they are prepared for it. The franchisee has to understand that this is the start of the hard work and that putting the sign up over the front door is not a guarantee that people are going to come in. They must make sure that they stick to the business case—that they are doing everything right, that they are participating in the community, and that they are doing the extra things. You cannot cut corners when you own your own business; you must commit wholly. The one thing that you can go without when you are a small business owner is sleep. The business takes up a lot of your time and you must be prepared for that.

That is the whole thing about 'in good faith'. What the minister wants to do here is make sure that people on both sides of this arrangement understand their responsibilities. A franchisor cannot just sit there and say, 'Give me $50,000 and I will set you up in a business and that is all the work that has to be done.' I know the minister is a Richmond supporter, but Bruce Billson is a good man and he understands what people are going through in business. That is the thing: you do not have to have cancer to cure it. When you have been in a situation where you have seen a business struggle or you know how much work has to be done, that is when you really understand what needs to go into these negotiations. So when the minister is standing in front of these people and explaining what he wants, he is coming at it from the perspective that he knows how much work is involved. I like these amendments. I think they are common sense. I want all parties to understand that they are about working in good faith. I commend the government for this bill and I thank the House.

Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I am always pleased to follow the member for Herbert and listen to his experience in business. I rise to speak on the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014. This bill will act as a first step in a series of much-needed amendments to Australia's franchising code. I have spoken previously in this place about the need to reform current codes of practice to ensure that the franchise industry is operating both fairly and ethically, particularly with regard to the conduct of franchisors towards franchisees. It has been obvious for a long time that reform is needed, but governments on both sides of the political divide have shied away from implementing the necessary amendments that will hold franchisors and, to a lesser extent, franchisees to account when unconscionable conduct takes place, such as nondisclosure. This is despite eight official reviews of the code taking place in the past eight years at the federal, state and territory levels.

As members in this place would know, franchises are predominantly small businesses. They are owned by families in each of our electorates, and these families quite often put their life savings into these businesses—believing that, by being part of a larger corporation, they will have the support they need to see their business thrive, rather than trying to develop their own business from the ground up. In the majority of cases this concept works well and Australia's franchising code provides the necessary mechanisms to facilitate contract agreements between franchisors and franchisees and sets out the procedures for dispute resolution when those instances arise. The national regulator for the code is the Australian Competition and Consumer Commission, or ACCC.

As I have said before, one reason that people go into a franchise situation is that they do not have the necessary experience that they need to be able to run a business. They have the money—they might want to invest their superannuation or take a loan out against their house—and they rely on the franchisors to give them the experience and the necessary disciplines. But where there is churning or situations where they are in conflict, the franchisors always seem to have it over the franchisees, because they are the ones with the experience and the franchisees have gone to them in the first place. A number of these issues have been identified in the most recent review of the franchising code, by Mr Alan Wein—particularly in regard to the practical applications of the code, as I just said, unnecessary red tape impositions and concerns surrounding levels of disclosure in this unique business relationship.

Many of the issues outlined were not new to me, and I am sure they were not new to many of my Western Australian colleagues who, like me, have supported the plight of constituents in their electorates who were faced with severe financial distress and hardship as a direct result of franchisor conduct. I acknowledge the member for Canning, Don Randall , who has introduced two private member ' s motions to this place calling for amendments to be made to the franchising code in relation to dispute resolution. Like Mr Randall, I have witnessed how the current franchise model and behaviour and the conduct of some franchisors ha ve the ability to send franchisees into bankruptcy.

By way of background, in 2008 three Western Australian franchise owners came to my electorate office in a state of distress, as they were on the verge of financial ruin after purchasing and continuing to run a franchise business from a company called Michel's Patisserie. I then proceeded to find out that this was not an individual case where the ability of the franchisees to run their business could potentially be questioned, but in fact five out of the 16 franchisees in Western Australia were in exactly the same position of distress , along with at least another 10 in Queensland. These middle-class, hardworking Australians placed their homes and financial lives at risk when they signed this franchise agreement based on the flawed business model where return on investment, without sufficient profits, was not forecast in the model provided.

As a result of this flawed model my constituent left the business and was left with a huge debt to the franchisor because the franchisor continued to trade with him when his business was clearly insolvent. When they did come to me they brought the necessary figures that were used to go to the bank in this situation and I looked and them and thought: I would never invest into a business on these figures . T hat is what their bank said as well when they went to the bank : they said , 'We won' t invest on those figures. ' So they went back to the franchisor and said , 'W e can't get any finance, ' and the franchisor said, 'O ur bank will finance it for you. ' That is the model that is actually flawed and this is what I am hoping this bill will help address. The purpose of those franchisors clearly trading with the business while it was insolvent could only have been to drive him back into a position where he would have to sell the franchise back to the franchisor for a 'walk away' sum of money and then they could sell the franchise to another potential client—a concept, as I just mentioned before, known as 'churning'.

I have previously joined my Western Australian colleagues in calling for reforms to the Franchise Code to ensure there is greater accountability for unconscionable conduct, particularly in regard to nondisclosure, and to ensure the franchise industry is operating both fairly and ethically. The coalition government has a strong record of supporting small business and we are progressively rolling out key policy measures such as the $484.2 million Entrepreneurs' Infrastructure Programme to provide practical support for businesses , and $304.1 million over four years from 2014-15 to boost the wage subsidy for mature age job seekers . W e have started the root - and - bra nch review of competition laws and have implemented a dedicated small business support line within Fair Work, to name a few of those new progra m s.

The government has implemented these key measures because we understand small business and the vital contribution this sector makes to our communities and the economy. I know from looking at our side of the House that there are many people with small business experience and other business experience—so the coalition gets it.

Franchises are a significant part of this small business sector, which the coalition government recognised in 1998 when the Howard government introduced the original franchising code. However, as I have previously stated, reform is needed. This view was endorsed by Mr Wein in his review of the code, and by industry following significant stakeholder consultation during the review process and when exposure drafts of the bill were released for public comment by the Minister for Small Business.

I am pleased the government has swiftly acted on Mr Wein's recommendation by introducing the bill before the House today , which will directly respond to my call for greater accountability for unconscionable conduct. The government will achieve this by giving the ACCC greater enforcement tools to appropriately regulate this industry and determine its conduct by allowing it to apply fines to businesses which breach prescribed industry codes.

The ACCC does need more teeth on this particular issue. When I went to them in the first instance with the people who came to my electorate they said, 'We can't really help in franchise situations when they are already in court.' I said, 'I've got five live cases that aren't in court. Let's go for it.' Unfortunately, the ACCC failed to act and these people ended up still in bankruptcy. Hopefully this legislation will improve that situation and allow the ACCC to act on a far quicker and far more efficient basis.

Currently, there are a range of possible consequences for a breach of the franchising code, which includes arbitration in court. The types of orders that a court can make in these instances are, however, limited to providing a remedy. During the review process, stakeholders indicated that these remedies do not suitably deter breaches of the code and that sanctions imposed do not appropriately compensate for the harm that has been suffered. As I noted when assisting my constituents in their plight against a franchisor, some franchisors have been experts in creating a history of evidence that supports their argument that the franchisee was not performing to their model and therefore the franchisee deserves no protection or compensation from the authorities or the legislation in its current format.

The implementation of Mr Wein's recommendation to introduce pecuniary penalties and infringement notices as remedies for contraventions of the franchising code, which this bill will facilitate, will directly respond to this ongoing issue in the franchising sector. This is not a new recommendation in reviews of this code; however, it has never been introduced despite it being a necessary measure to effectively deter ongoing misconduct in the industry. Although statistics relating to the number of disputes and enquiries to the ACCC support the belief that problems in the sector are moderate to low, that does not mean issues do not exist and that appropriate amendments do not need to be made to resolve these issues.

It is clear from the types of complaints and enquiries that have been received that greater enforcement tools are necessary to effectively regulate the franchise industry. In 2013, the ACCC received 595 complaints and 189 enquiries relating to franchising. The Office of the Franchising Mediation Adviser reported 504 enquiries from 1 July 2012 to 30 June 2013. The highest level of complaints and enquiries in these instances related to exit and misrepresentation or deception, followed by other key issues including moneys owed by the franchisor, termination or renewal, and inadequate support. The amendments before the House will provide the legislative framework to allow pecuniary penalties to be imposed by the courts and infringement notices to be issued by the ACCC for breaches of the new code.

The bill sets the upper limit for a pecuniary penalty for a contravention of an industry code at 300 penalty units, which is currently $51,000. The amount of an infringement notice issued by the ACCC for a code breach is 50 penalty units, or $8,500 for a body corporate, and 10 penalty units, or $1,700, in any other case. Infringement notices provide a timely, cost-effective enforcement alternative to commencing court proceedings and give the recipient the option of paying the penalty amount to avoid further action by the ACCC in relation to the alleged contravention.

Seeing these key reform measures implemented is important to me, not just because of the plight of my constituents but because franchises make up a significant part of Australia's small business sector, with the most recent Griffith University survey indicating that franchising contributed more than $130 billion to the national economy in 2012 and employed over 400,000 Australians. In 2012 there were approximately 8,400 franchises operating in my home state of Western Australia alone. Although figures are not available on an electorate level for franchises, as of June 2013 there were 16,153 small businesses in Swan. As a former small business owner myself, and Swan being home to many franchises—particularly in the automotive, retail and manufacturing sectors—I take a very keen interest in ensuring that government policy is aimed at facilitating their future success.

Although the bill before the House today will amend the Competition and Consumer Act 2010 to introduce pecuniary penalties and infringement notices, which will commence on 1 January 2015, a new franchising code will be put to the House at a later date to facilitate the implementation of other key recommendations by Mr Wein.

These changes to the code will result in an estimated compliance saving of $8.6 million annually across the sector by removing red-tape imposts, which is particularly important for the small business sector. As the Productivity Commission noted, small businesses feel the burden of regulation more strongly than any other business due to a lack of staff, time and resources, presenting challenges in understanding and fulfilling compliance obligations, so it is important that an unnecessary regulation is removed. As I previously stated, disclosure is a key concern amongst stakeholders in the franchising industry and reform is needed to improve transparency between franchisors and franchisees.

The new code will respond to this concern by including a requirement for franchisors to remind franchisees of their entitlement to a current disclosure document when notifying them that they intend to renew the franchising agreement. It will also include a short, easy to understand information statement for prospective franchisees to increase due diligence, and it will extend to online trading activities so that franchisees can assess the viability of their business if they also have to compete with franchisors conducting online sales. The new code will also respond to the concerns surrounding dispute resolution to ensure franchisors cannot impose their costs of dispute resolution on franchisees or require them to resolve disputes in a state other than the state in which the franchisee's business is based. An overarching obligation for franchisors and franchisees to act in good faith will also be introduced. It will remove confusion in the industry about whether the concept of good faith, as applied in common law, also applies to all aspects of a franchise contract by including this obligation in the legislation.

Greater transparency with regard to marketing funds will also be introduced to ensure franchisees receive meaningful information about expenditure of marketing and other co-operative funds. There will also be a specification in the code that marketing funds can only be used for expenses such as legitimate marketing or advertising expenses. The new code will also address concerns regarding onerous contract terms, including a franchisor's ability to impose unforeseen capital expenses such as refurbishments to retail premises, and concerns relating to trade clauses in instances where a franchisor chooses not to offer a franchisee a renewal of their agreement.

I look forward to the government's new Franchising Code being introduced in this place to improve the ACCC's ability to regulate the industry. I commend the bill to the House.

Jane Prentice (Ryan, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on the Competition and Consumer Amendment (Industry Code Penalties) Bill 2014 which implements the coalition government's policy of strengthening effectiveness and improving compliance with the Franchising Code of Conduct. The object of the Competition and Consumer Act is to promote competition and fair trading and to provide for consumer protection. The code aims to strike a balance between mandating best practice in relation to disclosure and not unduly constraining the operation of the market. The franchising relationship is rarely balanced. The franchisor generally has greater power because they are better resourced; they own or control the intellectual property, including trademarks, relating to the franchise business; they prepare the franchise agreement, which may be offered to a potential franchisee on a take-it-or-leave-it basis; they have broad and detailed knowledge of the business and its prospects; and they may control the supply of materials and other inputs to the franchisee.

Despite the popularity of franchising in Australia, there have been significant and often very public complaints about the operation of the franchising sector. In particular there has been widespread criticism about the lack of enforceability of the code. My electorate of Ryan has a strong small business population—upwards of 1,200—and a number of constituents who are franchisees have met with me to discuss the problems they have with their franchisor. It is this ongoing level of complaint within an apparently popular business model that has given rise to a number of high-level reviews. Between 2006 and 2008, there were five inquiries at the Commonwealth and state levels into franchising which sought to address allegations of misuse of power by franchisors. The most significant of these inquiries was carried out by the Parliamentary Joint Committee on Corporations and Financial Services. The report, entitled Opportunity not opportunism: improving conduct in Australian franchising, called for significant legislative amendments.

Amendments were made to the code in 2007 and 2010, following which the previous Labor government stated that it did not intend to conduct any further reviews before 2013.

In January 2013 the government appointed Mr Alan Wein to review the code with particular focus on the efficacy of the recommendations that had been made to the code in 2007 and 2010, and other matters such as good faith in franchising, the rights of franchisees at the end of the term of their franchise agreements—including recognition for any contribution they had made to the building of the franchise—and the operation of the provisions of the act as they relate to enforcement of the code.

Currently, it is the problem of information between franchisors and franchisees that is the basis of the concerns about disclosure. The importance of accurate and up-to-date disclosure cannot be overstated. Its purpose is to give to a prospective franchisee or an existing franchisee, who is proposing to enter into a new franchise agreement or renew or extend the scope of their franchise agreement, information from the franchisor that will allow that person to make a reasonable and informed decision, not the franchise. In addition, it concedes the fact that there are often difficulties for franchisees attempting to carry out due diligence before entering into a franchising agreement as would occur, say, with the purchase of an existing business.

As Jenny Buchan of the Australian School of Business explains:

If the franchise is owned by a public company, there will be very little information that is specific to the wholly owned franchisor subsidiary in the published annual returns of the public company.

While it is not difficult to conduct a search of proprietary company, franchisors often operate different aspects of their businesses through more than one legal entity.

The more entities there are, the more expensive and difficult it becomes to conduct a robust due diligence.

If any of those entities, including the franchisor, is in a trust, it is not possible to objectively verify the identity of the beneficiaries from the public records.

The franchisee, faced with the high cost or the impossibility of conducting a thorough due diligence for itself, will decide to trust the franchisor information more or less on face value. Or walk away.

The code is designed to ensure that franchisees are given information that is material to the running of the franchise business and provide access to a fast and relatively inexpensive way to resolve any disputes. Broadly, it achieves this by requiring the franchisors to disclose specific facts to franchisees and to follow set procedures in their dealings with franchisees. However, pecuniary penalties are not currently available for breaches of the code, nor is the ACCC currently empowered to issue infringement notices for a likely breach of the code. These are issues that this bill will remedy.

The Law Council of Australia summarise the cautious arguments in favour of imposing civil pecuniary penalties for a breach of the code as follows:

Penalties would operate as an effective deterrent to breaching the code … Due to the cost of justice, franchisees do not possess the resources to pursue franchisors, ie the sector is characterised by an imbalance of power and therefore the state should intervene.

It is inconsistent that penalties do not exist for a breach of the code, given that penalties exist for other breaches of the Competition and Consumer Act, including the Australian Consumer Law. The introduction of penalties would increase the confidence of investors and parties to a franchise agreement.

According to the Wein report, the ACCC as the industry regulator has argued that it should be able to issue infringement notices in addition to being able to seek pecuniary penalties for a breach of the code. This would be an appropriate penalty in circumstances where a franchisee has received an inaccurate or incomplete disclosure document from a franchisor. In particular, the payment of infringement notices in such circumstances would make the matter public and act as a deterrent to other franchisors. The Franchisee's Association of Australia has urged the parliament to pass laws which result in both civil and criminal sanctions for a breach of the code.

The franchise industry has been the subject of a number of inquiries at the state and Commonwealth level since 2006. This has led to amendments to the code in order to overcome many problems which have been reported by franchisees. In addition, there have been, since 2006, significant steps to update the Competition and Consumer Act, including the codification of the prohibition against unconscionable conduct.

The Wein review canvassed many of the same issues that were the subject of those earlier inquiries. The move to impose civil penalties for a breach of the code has long been resisted. What cannot be forgotten is that all breaches of the code will be liable for such a penalty—that is, a penalty can be applied equally to a non-compliant franchisee as a franchisor.

The challenge for this coalition government was to consider the Wein review recommendations afresh and to apply an even-handed response which does not unduly tip the balance of the franchise relationship too far in favour of the franchisees to the detriment of franchising generally. The coalition government, in particular, supported Mr Wein's recommendation to make enhanced and more flexible enforcement options available to the ACCC.

The minister for small business, the Hon. Bruce Billson, described Mr Wein's report as 'a terrific road map about areas of important reform in franchising'. I believe that this bill has risen to the challenge and met the delicate balance between the franchisor and the franchisee to ensure that the franchise sector is improved overall, and I commend this bill to the house.

Bruce Billson (Dunkley, Liberal Party, Minister for Small Business) Share this | Link to this | Hansard source

Madam Deputy Speaker Andrews, it was a great pleasure to receive the call from you and congratulations on your appointment. Firstly, I would like to thank all colleagues from all sides of the parliament that have contributed to this debate—really good contributions, insightful contributions, from the member for Eden-Monaro, the member for Hughes, the member for Swan, the member for Ryan, the member for Herbert and the member for Lindsay. I would also like to acknowledge the member for Oxley's contribution, particularly the encouraging news that Labor will be supporting this package. It is a very positive sign of the collaborative work that has gone on to get us to the point where we are today.

This is an important day. Franchising is very important and a crucial part of our vision of a diverse, vibrant, enterprising economy. And franchising is a big deal. The franchise industry is very important to our economy and the small business community. There are around 73,000 franchising units operating in our economy, employing over 400,000 Australians, and they are producing a sales turnover estimated to be in excess of $131 billion annually. This is a big deal.

We are the franchise capital of the world here in Australia, and so much of our learnings and insights are exported. What I am pleased to bring to the parliament is another instalment, another step, in a regulatory regime that has supported the growth, strength and confidence of franchising that so many enterprising Australians are a part of. This is what this bill goes to the heart of.

Alan Wein's report in 2013 was very good and useful. As was quoted, it was a report that the coalition welcomed as mapping out a road map for further franchise reform. The task that we have had is to translate Mr Wein's recommendations into a legislative instrument, and not only the bill before the parliament today but also the code that will follow once these enabling provisions are passed. That has been an enormous piece of work.

I recall being briefed by Mr Wein on his report and I said: 'Some of your recommendations are written in a conversational style of English. They're great to read. The question that follows is: how would you implement that?' I was encouraged by his advice that that was my problem to actually translate those wise—and I think conversationally communicated—recommendations into the instruments that we need to give effect to. He was quite happy to point out that that was our role and provide all the advice and support that he could, and he has. That is what has got us to the point where we are today.

The Competition and Consumer Amendment Industry Code Penalties Bill 2014 is a key component of our election commitment to introduce a package of reforms to improve the effectiveness of regulation of the franchise sector. The new national franchising code of conduct will be introduced later this year as part of these reforms, and this bill enables those provisions to be enacted. Some of the reform measures that will be in the code are outside the scope of the current enabling law, and that is why we have this amendment before the parliament today.

The bill amends the Competition and Consumer Act 2010 to allow regulations to be made that prescribe a pecuniary penalty not exceeding 300 penalty units for the breach of a civil penalty provision within that code. It allows the Australian Competition and Consumer Commission to issue an infringement notice where it has reasonable grounds to believe a person has contravened a civil penalty provision of industry code.

These respond to some of the observations that colleagues have raised. Under the previous code, if something was inconsistent with the code, the access to remedies, the tool kit available to the ACCC, the opportunity to simply deal with that salvaged the relationship between a franchisor and franchisee and let everyone get back to business, those tools were not available. So you would have a potentially exhaustive process to use broader powers within the competition framework, or in some cases the inappropriate conduct might go unaccounted for because it was too difficult to seek some kind of remedy. A party to that franchising relationship had every ground to be aggrieved about the conduct and could point to examples where the code had not been complied with. Yet the tool kit was not there to deal with that breach in a timely and responsive way. That is what we are trying to fix. Where there is aberrant conduct that is inconsistent with the code you deal with it quickly. Let the commission issue an infringement notice. Present the evidence. Allow the party whose conduct was inconsistent with the code to simply pay the infringement notice—they know they have done the wrong thing—and everyone can get back to business. This is what we are trying to achieve.

The penalty and infringement notice regime to be implemented by this bill represents a relatively modest penalty amount but it is targeted so that its application is balanced—it is a lighter touch approach—and it will give the teeth to industry codes to which it applies while preserving their co-regulatory nature. The new Franchising Code will specify the provisions that attract a pecuniary penalty. The bill will enhance the enforcement tools available to the ACCC to allow appropriate action to be taken against breaches of the new code and to produce greater deterrence outcomes. And, as I mentioned earlier, timeliness matters. You need to be able to deal with these issues quickly so that the harm and the consequences can be negated and so that an appropriate penalty is recognised for noncompliance. That is a crucial part of the reforms that we are seeking to introduce. This will encourage a higher compliance level across the sector and may assist in reducing the number of disputes, which in turn may reduce pressure on dispute resolution services or the need for costly litigation. We all know that, when a small business finds itself in court, it is often already at a disadvantage before the matter is even heard because of the imbalance in resources and the positions the parties can take.

We are seeking to introduce a maximum civil pecuniary penalty of 300 penalty units—which is currently $51,000—for breaches of certain provisions of the new code. It would have to be a serious breach to attract the upper reaches of the pecuniary penalty. Those serious breaches are of a kind that would undermine in a fundamental way the operations of the franchising relationship and result in detriment to the parties. Beyond that, there are further avenues available which a court can exercise. It is proportionate. More modest action can be taken decisively by the ACCC, and as you move to a higher level of penalty for more egregious breaches, that is where the court process comes in to seek authorisation for those stiffer penalties. Infringement notices of 50 penalty units for a body corporate—that is currently $8½ thousand dollars—will allow the ACCC to quickly and efficiently respond to less serious breaches. To go above that figure, to activate stiffer penalties for more egregious breaches, the commission will need to engage in a court process.

The introduction of pecuniary penalties for breaches of the new Franchising Code has been the subject of comprehensive consultation with industry stakeholders and has won broad support from the franchising community. That consultation has been at the heart of how we operationalise the Wein report recommendations. I commend my team, the Treasury officials, the ACCC officials and the many stakeholders not only for their contribution but also for the goodwill that they have displayed in collaboratively translating Alan Wein's excellent recommendations into the kind of legislative and regulatory instruments that give people confidence and clarity about the nature of the reforms and give effect to the intention that was behind the Wein report recommendations.

This measure will help enhance the business environment for franchisees and franchisors alike and will promote confidence and growth in what is already a vibrant and very substantial franchising sector in Australia. Importantly, it will lay the foundations for the new Franchising Code. The existing code has been in need of renovation and reform and this government has taken up that challenge after many years of calls for action to be taken. It did not happen under the previous government but it will happen under the Abbott coalition government. I am pleased that it will be introduced through regulations later this year and I expect that it will commence on 1 January 2015. I am encouraged by the bipartisan support for that measure from those on the other side of the chamber. Not only will these reforms be of benefit to the sector more generally; they will deliver an estimated net compliance reduction to the sector of $8.6 million annually. We never lose sight of our red tape and compliance burden reduction imperative. That is embedded in this work, as we seek to do with all of our work. This will reduce the red tape burden on businesses across the franchising sector. I commend this bill the House. I hope it has swift passage through the Senate. It represents a very important step in reforming a crucial area of our small business economy—that is the franchising sector.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.