Franchise debt disputes now belong in mediation before litigation
Danny Jovica
November 05, 2026
Franchise debt disputes sit squarely in the centre of Australian commercial ADR. They are rarely simple unpaid invoice matters. They usually involve a long-term contract, sunk investment, continuing fees, disclosure obligations, personal guarantees and a regulatory framework designed to manage an imbalance of power between franchisors and franchisees.
The new Franchising Code of Conduct, made under the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (Cth), has changed the way these disputes must be handled. From 1 April 2025, the Code replaced the former 2014 regulation and introduced stronger protections, expanded civil penalties and a revised dispute resolution framework. Further amendments from 1 November 2025 added requirements concerning a franchisee’s reasonable opportunity to earn a return on investment.
For franchisors, unpaid royalties, marketing levies, fitout contributions and termination-related amounts may appear to be straightforward contractual debts. In practice, they often trigger broader claims about misleading or deceptive conduct, deficient disclosure, unrealistic earnings representations, good faith and the commercial viability of the franchise model itself. A debt claim can quickly become a much larger dispute about how the franchise was sold, operated and ended.
For franchisees, the Code’s dispute resolution process is not a technical side issue. A written notice of dispute, direct negotiation and referral to the Australian Small Business and Family Enterprise Ombudsman for mediation or conciliation may be essential steps before proceedings are commenced. The Ombudsman does not decide the dispute, but the process creates a structured opportunity for parties to test the claim, exchange information and explore settlement before legal costs escalate.
This matters for Australian commercial mediation because franchise disputes are especially suited to early ADR. The parties often need more than a binary ruling on whether money is owed. They may need an exit arrangement, payment plan, release of guarantees, treatment of stock and branding, lease coordination, confidentiality, or a clean handover of customer and operational records. Courts can determine rights, but mediation can design the commercial separation.
The costs position also changes the settlement dynamics. The new Regulations restrict franchisors from requiring franchisees to pay the franchisor’s legal costs in relation to the franchise agreement or dispute resolution costs for agreements entered into on or after 1 April 2025. That makes proportionality critical. A franchisor may be legally correct about a debt and still face a commercially poor outcome if the recovery path is slow, expensive and met by counterclaims.
Personal guarantees remain one of the most important pressure points in these disputes. Many franchisees operate through companies, but directors or principals commonly guarantee the franchisee entity’s obligations. If the business fails, the guarantee can move the dispute from corporate debt recovery into personal exposure. Mediators should identify early whether any proposed settlement needs to include releases, staged payments, security, or terms dealing with continuing liability after exit.
The practical lesson is clear. Franchisors should not treat franchise debt as ordinary debt recovery without first checking Code compliance, disclosure history, calculation of the amounts claimed and counterclaim risk. Franchisees should not ignore demands or assume insolvency of the franchise entity ends the matter. Both sides need to prepare for mediation with the contract, disclosure documents, account statements, correspondence, breach notices and any guarantee documents in order.
Australian franchise disputes are entering a more regulated and more mediation-focused phase. The parties best placed to resolve them will be those who use the Code’s dispute resolution framework early, prepare the commercial and legal issues properly, and treat mediation as a serious decision-making forum rather than a procedural hurdle before court.
For help preparing for or resolving a franchise debt mediation, contact Mediator Life at https://mediator.life/contact.
Sources:
- Shire Legal — The Franchise Debt Trap: What Both Sides Need to Know Before the Lawyers Arrive
The new Franchising Code of Conduct, made under the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (Cth), has changed the way these disputes must be handled. From 1 April 2025, the Code replaced the former 2014 regulation and introduced stronger protections, expanded civil penalties and a revised dispute resolution framework. Further amendments from 1 November 2025 added requirements concerning a franchisee’s reasonable opportunity to earn a return on investment.
For franchisors, unpaid royalties, marketing levies, fitout contributions and termination-related amounts may appear to be straightforward contractual debts. In practice, they often trigger broader claims about misleading or deceptive conduct, deficient disclosure, unrealistic earnings representations, good faith and the commercial viability of the franchise model itself. A debt claim can quickly become a much larger dispute about how the franchise was sold, operated and ended.
For franchisees, the Code’s dispute resolution process is not a technical side issue. A written notice of dispute, direct negotiation and referral to the Australian Small Business and Family Enterprise Ombudsman for mediation or conciliation may be essential steps before proceedings are commenced. The Ombudsman does not decide the dispute, but the process creates a structured opportunity for parties to test the claim, exchange information and explore settlement before legal costs escalate.
This matters for Australian commercial mediation because franchise disputes are especially suited to early ADR. The parties often need more than a binary ruling on whether money is owed. They may need an exit arrangement, payment plan, release of guarantees, treatment of stock and branding, lease coordination, confidentiality, or a clean handover of customer and operational records. Courts can determine rights, but mediation can design the commercial separation.
The costs position also changes the settlement dynamics. The new Regulations restrict franchisors from requiring franchisees to pay the franchisor’s legal costs in relation to the franchise agreement or dispute resolution costs for agreements entered into on or after 1 April 2025. That makes proportionality critical. A franchisor may be legally correct about a debt and still face a commercially poor outcome if the recovery path is slow, expensive and met by counterclaims.
Personal guarantees remain one of the most important pressure points in these disputes. Many franchisees operate through companies, but directors or principals commonly guarantee the franchisee entity’s obligations. If the business fails, the guarantee can move the dispute from corporate debt recovery into personal exposure. Mediators should identify early whether any proposed settlement needs to include releases, staged payments, security, or terms dealing with continuing liability after exit.
The practical lesson is clear. Franchisors should not treat franchise debt as ordinary debt recovery without first checking Code compliance, disclosure history, calculation of the amounts claimed and counterclaim risk. Franchisees should not ignore demands or assume insolvency of the franchise entity ends the matter. Both sides need to prepare for mediation with the contract, disclosure documents, account statements, correspondence, breach notices and any guarantee documents in order.
Australian franchise disputes are entering a more regulated and more mediation-focused phase. The parties best placed to resolve them will be those who use the Code’s dispute resolution framework early, prepare the commercial and legal issues properly, and treat mediation as a serious decision-making forum rather than a procedural hurdle before court.
For help preparing for or resolving a franchise debt mediation, contact Mediator Life at https://mediator.life/contact.
Sources:
- Shire Legal — The Franchise Debt Trap: What Both Sides Need to Know Before the Lawyers Arrive