The Franchise (Amendment) Act 2020

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On 6 March 2020, the Franchise Amendment Act 2020 was gazetted and is required to come into power soon. Section 6(1) of the Act requires a franchiser to enroll his franchise before he can operate a franchise business or make an offer for selling the franchise to any individual. Section 6(2) gives that inability to comply is an offense. Section 54 of the Act lays down the foreign individual intending to sell a franchise in Malaysia need to apply to the Registrar for an approval

The Franchise Registry has consistently taken the position that a nearby franchisor is needed to register under Section 6 while a foreign franchisor is needed to apply for an approval under Section 54.

The Amendment Act seeks to alter Section 6(1) of the Act by giving that a franchiser or a foreign individual who has acquired an approval for selling a franchise in Malaysia or to any resident of Malaysia under Section 54 shall register his/her franchise before operating a franchise business or making a proposal to sell the franchise to any individual. The Amendment Act will likewise alter Section 6(2) of the Act to lay down that any franchiser or foreign franchiser who fails to register the franchise commits an offense.

There is in this way now a two-step procedure for foreign franchisors who needs to apply for approval under Section 54 of the Act and then apply for registration under Section 6 of the Act. The transitional provisions lays down that any foreign individual who has got Section 54 approval before the coming into force of the Amendment Act will be considered to have enrolled his franchise under Section 6 of the Act.

Section 6A of the Act requires the franchisee of an foreign franchisor to enroll the franchise prior to starting the franchise business while Section 6B requires the franchisee of a nearby franchisor to enlist the franchise within the time period of fourteen days from the date of signing the franchise agreement. The Act is absolutely silent on the results of failing to register. The Amendment Act settle this uncertainly by providing that failure to comply is an offence..

Right now, franchise registrations are effective for an indefinite period except if the Registrar gives a written request to the franchisor of suspending, canceling or terminating the registration. The Amendment Act presents a fixed term for the franchise registration, the time span of which is to be prescribed. The transitional provisions lays down that registration obtained under the Act shall continue to be effectual for such time period as stipulated. Hence, existing franchise registrations will also require to be renewed when the term comes up. We anticipate the guidelines to be given by the Minister of Domestic Trade and Consumer Affairs to indicate the term of new franchise registrations and for existing enrollments.

The Amendment Act presents a prerequisite for the franchiser or franchisee to, consistently, show the enlistment of franchise in an apparent situation at the franchiser’s or franchisee’s business environment.

Segment 18 of the Act specifies certain required terms which should be comprised in a franchise agreement and gives that inability to incorporate such terms will render the franchise agreement invalid and void. The Amendment Act makes inability to incorporate the required terms an offense as opposed to rendering the franchise agreement null and void.