Overview of the Franchise (Amendment) Bill 2019
Pua Siau Kee analyses the impending legislative amendments impacting the franchise industry in Malaysia
In December 2019, the Malaysian Parliament passed the Franchise (Amendment) Bill 2019 (“Bill”) to amend the Franchise Act 1998 (“Act”). The Bill is likely to come into force in the first half of 2020 and is expected to bring about various changes some of which are discussed below.
Additional registration for foreign franchisors
Under the current practices of the Registrar of Franchises (“Registrar”), foreign franchisors are only required to seek franchise approval under Section 54 of the Act whereas local franchisors and local master franchisees are required to register as franchisors under Section 6 of the Act. The Bill however imposes a mandatory requirement on foreign franchisors to additionally obtain approval under Section 6 of the Act before they are able to make an offer to sell the franchise to any person in Malaysia.
Unless specifically exempted, this would translate into foreign franchisors having to go through the comparatively tedious process of a Section 6 application which requires extensive information such as the training and operation manuals as well as business projections to be submitted, and will also incur fees for the additional registration. Failure to comply with such requirement would be an offence under the Act. Foreign franchisors who have obtained their Section 54 approval before the implementation of the new Bill will however be relieved to know that their franchises will be deemed to be registered under Section 6 and thus no additional application will be required.
Registration of franchisees
A franchisee who has been granted a franchise from a foreign franchisor, local franchisor or local master franchisee is currently required to register with the Registrar before it commences its franchised business. Given that few franchisees comply with the requirement in practice, the Bill now makes it an offence in the event of non-compliance.
Validity period and renewal of franchise registration
Currently, all franchise registrations obtained by franchisors and franchisees continue to be effective until such registrations are suspended, terminated or cancelled. The Bill however seeks to introduce a validity period for all franchise registrations. After such period, franchisors and franchisees may apply to the Registrar to renew their registrations upon payment of the requisite renewal fees. The validity period and renewal fees have however not been made known and it is uncertain at this stage whether registrations obtained prior to the date of coming into operation of the new Bill will be subject to these provisions.
Display of certificate of franchise registration
All franchisors and franchisees will under the Bill be required to display their certificates of franchise registration at their business premises. Failure to comply with the same would be an offence under the Act.
Salient terms to be included in a franchise agreement
The Act provides for various salient terms which must be included in a franchise agreement such as the name and description of the franchised business, territorial rights, fees imposed, parties’ obligations, intellectual property rights etc. Under the existing Act, failure to include the prescribed salient terms would render the franchise agreement null and void. Interestingly, the Bill seeks to delete such requirement. This would mean that an agreement may still be deemed a franchise agreement even if it missed out a prescribed salient term. It is believed that the reason for doing so is to clothe the Registrar with the discretion to approve franchise applications.
The Bill seeks to strengthen the enforcement powers of authorised officers. For instance, the Bill clarifies that the items seized under the Act such as accounting books etc. are liable to forfeiture in accordance with stipulated procedures. Further, no person shall be entitled to the costs of the proceedings, damages or any relief in respect of the seized items unless the seizure was made without reasonable cause. In the case of a conviction leading to a fine, the Bill further provides for a reward to the person who gave such information leading to the conviction, which shall not exceed half the fine imposed.
Only time will tell if the Bill will bring the Act to be more in line with the current and ongoing developments of the franchise industry in Malaysia, which it aims to do. In view of the amendments, it is also expected that various procedures and requirements under the current Franchise Regulations 1999 will have to be revised or introduced, especially those involving the franchise registration and renewal processes.
Siau Kee is an Associate at Wong Jin Nee & Teo. She actively advises and assists clients on franchise matters including registration. She is also skilled in patent prosecution matters.