UTGB Vol 5.pdf - Robson Hall Faculty of Law

Section 11 of the Regulations Made Under the Arthur Wishart Act (Franchise
Disclosure), 2000/ 34 contains the tripartite test for the financial exemption. It is
important to note that this is a self.-declaratory process, and the onus to satisfy
the tests rests on the applicant. A franchisor must thus establish that: (1) the
franchisor has a net worth on a consolidated basis based on its most recent
audited or review engagement financial statement of not less than $5 million or
$1 million if it is controlled by a corporation that has a net worth of not less
than $5 million; (2) the franchisor has had at least 25 franchisees operating in
Canada or in a single country other than Canada during the five;year period
prior to the disclosure document, or it is controlled by a corporation that
satisfies this requirement; and (3) the franchisor, its associates, officers,
directors, or general partners have not had any judgment, order or award made
in Canada against them relating to fraud, unfair or deceptive business practices,
or a law regulating franchises, including the Arthur Wishart Act (Franchise
Disclosure), 2000 in the five years prior to the date of the disclosure document. 85
In contrast, Alberta has incorporated a two-pronged test that does not contain
the third step from Ontario's regulations. According to s. 1 of the Franchises Act
Exemption Regulation, 86 a franchisor will not be required to include financial
statements in a disclosure document given to a prospective franchisee if:
(a) the franchisor has a net worth on a consolidated basis according to its most recent
financial statements, which have been audited or for which a review engagement
report has been prepared, of not less than $5 million or of not less than $1 million if
the franchisor is controlled by a corporation that has a net worth of no less than $5
million; and
(b) the franchisor has had at least 25 franchisees conducting business at all times in
Canada during the 5year period immediately preceding the date of the disclosure
document, has conducted business that is the subject of the franchise continuously for
no less than 5 years immediately preceding the date of the disclosure document, or is
controlled by a corporation that meet the two previous requirements.
It may be argued that Alberta has not included the third requirement from
Ontario's test in an attempt to restrict it to purely financial matters. In other
wordst as the fact that a franchisor, its associates, officers, directors or general
partners have not had any judgments made against them relating to fraud,
unfair or deceptive business practices or a law regulating franchises, has no
relation to the franchise's past and current financial status, it should have no
influence on whether an exemption with regards to financial statement should
apply. After all, a franchisee will come to learn of the franchisor's previous
convictions or pending charges through Schedule 1 of the Regulations. 87
84
0. Reg. 581/00.
85
So, supra note 71 at 112.
86
Alta. Reg. 312/2000, s. 1.
87
A.R. 240/95 Sched. 1; 317/2000, s. 2.