Published on September 25, 2010
Posted in: Blog
On June 10, 2010, the New Brunswick legislature introduced the province’s new disclosure document regulations. The regulations implement the disclosure requirements from the province’s recently enacted Franchises Act, S.N.B. 2007, c. F-23.5.
The regulations seek to balance the at-times competing interests of franchisees and franchisors by setting up a complete and transparent disclosure regime for the benefit of franchisees on the one hand, while at the same time not making the process so onerous as to dissuade franchisors from entering into the relatively small market of New Brunswick. The regulations are essentially an amalgam of the current regulations in place in Ontario and Prince Edward Island with the Uniform Law Commission of Canada draft franchise regulation.
For those familiar with the Ontario disclosure regulation, the New Brunswick regulation will appear similar with some key differences. Some points to keep in mind are:
- franchisors may use disclosure documents that have been prepared for other jurisdictions, provided they provide supplementary information to bring them into accordance with the New Brunswick regulations (s. 4). Financial statements prepared for other jurisdictions may be used so long as they are “equivalent” to the ones specified in s. 7;
- a disclosure document may be delivered by electronic delivery so long as the documents do not include any hyperlinks, i.e. the documents must be self contained and printable (s. 3);
- franchisors with a net worth of at least $2 million and with 25 franchises in Canada do not have to disclose their financial statements;
- franchisors must disclose why they are not including certain optional information, such as estimates of operating costs (pt 3, s. 4), earnings projections (pt 3, s. 5), training (pt 3 s. 7), and territory (pt 3, s. 12);
- the regulations set out specific information related to statements of material change. Section 9 deals with who may sign and date a statement of material change and prescribes that statements must be drafted according to a standard form;
- the regulations require that additional franchise information beyond what is required in Ontario be disclosed. Franchisors must disclose information about “other fees” (pt 3, s. 2), guarantees and security interests (pt 3, s. 3), operations manuals (pt 3, s. 8), distances sales (including internet-based sales) (pt 3, s. 14) and the franchisor’s ability to make unilateral amendments to the franchise agreement (pt. 3, s. 20);
- the “Lists of Franchisees and Businesses” section reflects the reality that very few franchisors will ever operate more than 20 franchises in New Brunswick. The franchisor must first provide information about other franchisees in New Brunswick, then Ontario, Quebec, Prince Edward Island, Nova Scotia or the State of Maine, then the rest of Canada, and finally everywhere else until 20 franchises are listed (pt 4).
Overall, disclosure documents prepared by franchisors for Ontario or Prince Edward Island markets should be readily adaptable for New Brunswick under the new regulations.