The Franchise (Amendment) Act 2020 (“Amendment Act”) which was gazetted on 6 March 2020 has made few significant changes to the Franchise Act 1998 (“FA”). However, the Amendment Act has not come into operation as at the date of this article. Nonetheless, it is worth to note the changes so that any person who intends to venture into a franchise business may take necessary steps in advance.
1. Double registration for foreign franchisor
Prior to the Amendment Act, a local franchisor is required to register its franchise under section 6 of the FA and a foreign franchisor is required to obtain approval from the Registrar of Franchises (“Registrar”) under section 54 of the FA.
However, the High Court in the case of Dr H K Fong Brainbuilder Pte Ltd v. SG-Maths Sdn Bhd & Ors [2018] 11 MLJ 701 held that a foreign franchisor is also required to be registered under section 6 of the FA. The High Court’s decision was recently affirmed by the Court of Appeal (see, Dr H K Fong Brainbuilder Pte Ltd v. SG-Maths Sdn Bhd & Ors [2021] 1 CLJ 155). Therefore, there was a confusion whether a foreign franchisor was required to be registered under section 6 of the FA.
The confusion is now cleared by the Amendment Act. In addition to obtaining an approval from the Registrar to sell his franchise business under section 54 of the FA, the Amendment Act also requires a foreign franchisor to be registered under section 6 of the FA. Foreign franchisors who have already obtained approvals to sell a franchise in Malaysia under section 54 of the FA before the Amendment Act comes into operation are deemed to have registered their franchise under section 6 of the FA (see section 27(3) of the Amendment Act).
2. Failing to register franchise by franchisee is an offence
Section 6B of the FA requires franchisee to register the franchise within 14 days from the date of signing of the agreement between the franchisor and franchisee. The Amendment Act makes it an offence for any franchisee who fails to do so.
3. Limited period of effectiveness of registration and renewal
Prior to the Amendment Act, a franchise that is successfully registered under the FA will remain valid and effective until the Registrar suspends, terminates or cancels the registration. Such perpetual effectiveness is taken away by the Amendment Act. Once the Amendment Act comes into operation, a limited period will be prescribed by the Registrar. It follows that an application to renew the registration of franchise will also need to be made and the renewal application shall be made within 30 days from the expiry date.
4. Requirement to display registration of franchise
The newly introduced section 10B requires the registration of franchise to be displayed in a conspicuous position at the place where the business is carried on. Failing to display the registration is an offence under section 10B.
5. Requirements of franchise agreement
The Amendment Act requires a franchise agreement to state the terms of renewal and extension of the franchise agreement. There is no requirement to state the terms of extension prior to the Amendment Act.
The provision which states that a franchise agreement which fails to comply with the prescribed terms provided under the FA is null and void will be removed by the Amendment Act when the Amendment Act comes into operation. This means that any franchise agreement that does not comply with the prescribed terms is still valid and enforceable but the franchisor and the franchisee will be subject to statutory penalties. Therefore, it is still advisable to adhere to the requirements of the FA.
