By Foong Cheng Leong & Hee Pau Ling
The Franchise (Amendment) Bill 2019 (“Bill”) has been passed by the Dewan Rakyat (House of Representatives) on 3 December 2019 [Postscript: The Bill received its Royal Assent on 20 February 2020 and published in the Gazette on 6 March 2020].
The Bill seeks to amend the Franchise Act 1998 (“Act”) to be in line with the current developments of the franchise business in Malaysia. The following are some of the key proposed amendments of the Bill-
(i) Double Registration of Franchise by Foreign Franchisor
Under the present section 54(1) of the Act, a foreign franchisor who wishes to sell a franchise in Malaysia to a Malaysian citizen is required to submit an application to the Registrar of Franchise. Section 6 of the Act also requires a franchisor to register his franchise before he can operate a franchise business or make an offer to sell the franchise of any party.
As the documents and information required under an application under section 54 are almost identical to section 6, the current practice by the Franchise Registry is that they will automatically register the application under section 6(1) of the Act upon approval of the application under section 54.
The proposed section 6(1) of the Act will require a foreign franchisor to register himself under sections 6 and 54(1) of the Act separately. It is unclear if the applications can be done simultaneously or consecutively.
(ii) Offence for Failing to Register Franchise by a Franchisee
The current section 6B(1) of the Act requires a franchisee of a local franchisor who has been granted a franchise from a local franchisor or local master franchisee to register the franchise with the Registrar of Franchise within fourteen (14) days from the date of signing of the franchise agreement.
With the proposed amendment, it will be an offence for any franchisee who fails to do so.
(iii) Renewal of Franchise Registration
A franchisor will soon need to renew their registered franchise in Malaysia. The validity period of a franchise registration will be provided by the Franchise Registry and subject to terms and conditions and payment of renewal fees (if any). However, this provision is unlikely to affect franchises that are registered before the enforcement of the amendments.
(iv) Requirements of a Franchise Agreement
Under the proposed section 18(2)(l) of the Act, a franchise agreement shall state the terms of renewal and extension. However, such terms are not prescribed by the Bill.
Additionally, the Bill proposes to delete section 18(3) of the Act which provides that a franchise agreement that does not comply with the requirements of section 18(2) of the Act (basics terms and conditions of a franchise agreement) will not render a franchise agreement null and void.
However, it should be noted that complainants can still seek legal recourse under the proposed section 18(6) of the Act which seeks to make the failure of compliance with section 18 of the Act an offence. Such offence is punishable with a fine up to RM50,000 for body corporates. Non-body corporates face a lesser fine of up to RM25,000 and/or imprisonment for a term not exceeding six months. Increased penalties apply for subsequent offences. Upon sentencing, the Court may also declare that the franchise agreement to be null and void. Overall, this would be subject to the discretion of the Attorney General of Malaysia to prosecute the franchisor. To date, there is no reported case of any franchisor being prosecuted under the Franchise Act 1998.
(v) Introduction of the definitions of “subfranchise” and “subfranchisee” into the Act
“subfranchise” is now defined as a franchise granted by a master franchisee to a subfranchisee for business purposes under the Act, while “subfranchisee” is defined as a subfranchise holder. However, there is no specific provision introduced for subfranchise and subfranchisee.