Malaysian Franchise (Amendment) Act 2020 seeks to strengthen enforcement and clarifies the franchise registration regime
14 May 2020
On 6 March 2020, the Franchise (Amendment) Act 2020 (“Amendment Act”) was gazetted. It is not yet in force. The Amendment Act seeks to amend the Franchise Act 1998 (“Act”) to clarify the franchise registration regime and keep up with current developments in the franchise business industry.
The Amendment Act introduces the following key amendments:
Additional registration for foreign franchisors:
The Act requires a local franchisor to register its franchise under section 6(1). However, a foreign franchisor is required to obtain approval from the Franchise Registry (“Registrar”) under section 54 of the Act. Once this approval is obtained, there is no need to undertake separate registration of the franchise under section 6.
The Amendment Act requires a foreign franchisor to now register its franchise under section 6(1), in addition to obtaining approval under section 54 of the Act. In relation to those foreign franchisors who have previously obtained approval to sell a franchise under section 54 of the Act prior to the coming into force of the Amendment Act, the saving and transitional provision under section 27 of the Amendment Act states that they are deemed to have registered their franchise under section 6(1) of the Act.
Renewal of franchise registration:
Under the previous regime, section 10 of the Act stipulates that upon registration of a franchise, it would continue to be effective unless it was suspended, terminated or canceled by the Registrar. The Amendment Act inserts a new section 10A which states that franchise registrations will now have a prescribed period of effectiveness. The franchisor will need to apply to the Registrar to renew their franchise registration within 30 days from the expiration date, and section 10 shall apply to the period of effectiveness renewed under the new section 10A.
New offences:
- Failure to register: The new section 6B as inserted by the Amendment Act makes the failure to register as franchisee an offence.
- Display requirement: The Amendment Act requires a franchisor or franchisee to display the registration of franchise in a conspicuous position at the place where their business is carried out, according to Section 10B. The franchisor or franchisee who fails to comply with this display requirement commits an offence.
- Requirements of a franchise agreement: Section 18(2) of the Act contains mandatory provisions that must be included in a franchise agreement. Under section 18(3) of the Act, omitting these provisions from the franchise agreement has the effect of rendering the agreement null and void. Pursuant to the Amendment Act, this provision will be deleted. Regardless, a person who does not include the compulsory provisions commits an offence, pursuant to section 14(c) of the Amendment Act.
Additional definitions: Section 4 of the Act is amended to include new definitions for “subfranchise” and “subfranchisee”. The former is defined as being a franchise granted by a master franchisee to a subfranchisee for business purposes under the Act, whilst the latter is defined as a subfranchise holder.