Underneath the Golden Boy - Robson Hall Faculty of Law

Response to Consultation Paper on Franchise Law 321
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
Regardless of the specific requirements behind Alberta and Ontario’s
exemptions, incorporating them into Manitoba’s legislation is a sensible idea.
Taking only the first two steps in each test in consideration, it is clear that only
those franchisors who are so large and well established that very little doubt may
exist as to their financial status will be exempt from delivering financial
statements. This means that a franchisee will still be able to make an informed
decision, knowing that no disclosure document was provided because of the
franchisor’s size. However, if Manitoba were to incorporate this exemption, a
provision should be added allowing a franchisee to still demand financial
statements. If the franchisee is required to invest a very large sum in order to
acquire the franchise, s/he should be able to consider the company’s financial
situation by looking at a statement. Assuming that this is a very sensitive topic
for the franchisor, the franchisee may be required to sign a confidentiality
agreement that the financial statements will not be disclosed to anyone outside
the franchise, thus successfully protecting such sensitive information. Ideally,
Manitoba should introduce a liquidity test, since a franchise may have a
seemingly good net-worth but be illiquid. However, doing so would make
Manitoba too strict, possibly deterring incoming franchisors.
What of the third step in Ontario’s test The requirement that the
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 should be included in Manitoba’s
franchise legislation. Although it may not be specifically related to financial
issues, legislation should require a franchisor to be as transparent as possible,
especially where they have been charged or convicted of such offences.
In conclusion, Manitoba should adopt the exemption in question to allow
large franchisors to refrain from disclosing sensitive financial information.
Furthermore, Ontario’s provision should be adopted with an addendum allowing
a franchisee to request disclosure of financial documents where the franchisor
has applied for an exemption. If the request is granted, the franchisor should be
allowed to require the franchisee to sign a confidentiality agreement protecting
all financial information.
87
A.R. 240/95 Sched. 1; 317/2000, s. 2.