Franchisor solvency statements and financial reports: getting disclosure item 21 right

• Route 1: the statement plus financial reports for each of the last 2 completed financial years, prepared under sections 295 to 297 of the Corporations Act (item 21(2)).
• Route 2: the statement supported by an independent audit from a registered company auditor, provided within 4 months after year end and attached (item 21(4)).
• A franchisor that hasn't existed for 2 financial years gives a statutory declaration and an independent audit report on solvency instead of the reports (item 21(5)).
• A franchisor that was insolvent in either of the last 2 completed years must add the period of insolvency, a statutory declaration and an audit report on solvency (item 21(6)).
• New statements or item 21 documents must reach franchisees and prospects as soon as reasonably practicable, and before a prospect signs, under the Code's higher penalty tier (s34(1)).

1. Item 21(1), always required: a solvency statement reflecting the franchisor's position at the end of the last financial year, or at the statement date if it didn't exist then, signed by at least one director and giving the directors' opinion on whether there are reasonable grounds to believe it can pay its debts as and when they fall due.
2. Item 21(2): financial reports for each of the last 2 completed financial years, prepared by the franchisor under sections 295 to 297 of the Corporations Act, or a foreign equivalent.
3. Item 21(3): if the franchisor is part of a consolidated entity that must provide audited financial reports, and a franchisee asks for them, that entity's reports for the last 2 completed financial years. The ACCC says this is in addition to item 21(2).
4. Item 21(4): items 21(2) and 21(3) don't apply if the solvency statement is supported by an independent audit from a registered company auditor, or a foreign equivalent, provided within 4 months after the end of the financial year, with a copy attached.
5. Item 21(5): an entity that hasn't existed for 2 or more financial years gives a statutory declaration of solvency and an independent audit report on its solvency at the declaration date, instead of the reports.
6. Item 21(6): an entity that was insolvent in either or both of the last 2 completed financial years gives the period of insolvency, a statutory declaration of solvency and an independent audit report on solvency.

1. Choose your route early: 2 years of financial reports, or a solvency statement backed by an independent audit.
2. For the audit route, engage a registered company auditor in time to finish within 4 months of year end. The ACCC says the audit report must give an opinion on whether there are reasonable grounds to believe you can pay your debts as and when they fall due, and points auditors to guidance statement GS 018.
3. Have the directors review solvency before anyone signs, including cash flow forecasts, debts falling due and contingent liabilities.
4. Draft the statement for at least one director to sign. The ACCC calls it good practice to date it as at the date of signing.
5. Attach the reports or audit, and list every attachment in the table of contents (s20(6)).
6. Line it up with your annual update: for a 30 June year end, both the 4-month audit window and the s21 update close on 31 October.
7. When new item 21 documents come into existence, such as the next year's reports, give them to franchisees and prospects as soon as reasonably practicable and before any prospect signs (s34(1)).
8. Keep the supporting documents for 6 years after the disclosure document was last given (s37(2)). If the directors can't honestly form the opinion, stop and get advice rather than sign.

• Check the entity: the name and ABN on the statement and reports should match the franchisor in the agreement, not a parent or sister company.
• Check the date: the statement reflects the end of the last financial year. Ask whether anything newer exists; if it does, the franchisor must give it to you before you sign.
• Check the signature: at least one director must sign it.
• Check the route. Item 21(2) refers to reports prepared under the Corporations Act, not necessarily audited ones, so ask whether they were audited or reviewed.
• Ask for group accounts if item 21(3) applies. You have to request them.
• For a new franchisor, expect a statutory declaration and an independent audit report on solvency (item 21(5)), and ask who is funding the business.
• Read item 4 alongside it: bankruptcy, insolvency or external administration of the franchisor, its directors, associates or their directors in the last 10 years must be disclosed there.
• Have your accountant review the figures, including cash, net assets, related-party balances and any notes about going concern.

• An unsigned or undated statement, or one signed by someone who isn't a director.
• A statement for a financial year that ended more than 16 months ago, which suggests a missed annual update. For a 30 June year end, a 30 June 2025 position should have been replaced by 31 October 2026.
• Reports or a statement for a different entity from the one granting the franchise.
• An audit opinion that is qualified, or that highlights a material uncertainty about going concern.
• Insolvency in either of the last 2 financial years (item 21(6)), or insolvency history in item 4.
• Reluctance to provide consolidated entity reports when item 21(3) applies.
• A Register answer on bankruptcy or insolvency that doesn't match the disclosure document.

The Register's extra-information rules ask whether the franchisor, an associate or a director of either has been bankrupt, insolvent under administration or externally administered. The disclosure document's equivalent item covers the last 10 years (item 4(2)(c)).

• FranchiseScope analysis of Franchise Disclosure Register profiles (captured 19 August 2026): of the 927 profiles that answered the insolvency question, 20 said yes, about 2%.
• In the same data, 10 of 927 profiles flagged a civil judgment and 3 of 926 flagged a serious offence.
• The answers are self-reported by franchisors, and about a fifth of the 1,187 profiles captured didn't answer these questions.
• A yes isn't automatically disqualifying. It tells you to read items 4 and 21 closely and ask what happened.
• A no isn't evidence of current solvency. The Register doesn't show a franchisor's finances, so item 21 still matters.

• The franchisor must tell franchisees and prospects in writing, within 14 days of becoming aware, that it or an associate has become externally administered, with the name and address of the administrator, controller, liquidator or restructuring practitioner (s34(3)(f) and (5)).
• The ACCC's information statement warns that if a franchisor becomes insolvent, franchisees may not be compensated for the loss of their business.
• It also warns that money contributed to a specific purpose fund may not come back. The Code does require fund money to be kept in a separate account (s61(3)).
• Get legal advice early about your agreement, your lease and any personal guarantees.

• The statement is signed by a director, dated, and reflects the end of the last financial year.
• Two years of reports, or an audit completed within 4 months of year end, are attached.
• New and previously insolvent entities include the required statutory declaration and audit report.
• The table of contents lists every financial attachment.
• New item 21 documents go to franchisees and prospects without delay.
• Buyers have had an accountant review the figures before signing.