Update on the Franchise (Amendment) Act 2020

The Franchise (Amendment) Act 2020 (“Amendment Act“) came into force on 28 April 2022. The Act has imposed various requirements, obligations and regulatory restrictions on franchise operation in Malaysia to franchisors (local & foreign) as well as franchisees for registration. These regulations including introducing more stringent requirements when registering the franchise in Malaysia as well as introducing Period of Effectiveness of Registration pursuant to Franchise Regulations 2022.

Key amendments to the Franchise Act 1998

1. Introduction of New MyFEX 2.0 system for registration online

A new Franchise system namely MyFEX 2.0 has been introduced to replace the old MyFEX 1.0 system to facilitate the franchise registration process for foreign and local franchisors. The new system streamlines the overall registration process for both franchisors and franchisees to share a single login ID to access the system.

2. Foreign franchisors must register the franchise under section 6(1)

Under the old Act, a foreign person who intends to sell a franchise in Malaysia or to any Malaysian citizen need to obtain approval from the Ministry of Domestic Trade and Consumer Affairs (“KPDN”) under Section 54. However, as from 28 April 2022, a foreign franchisor seeking to enter the Malaysian market must now apply for approval under Section 54 and also separately for registration under Section 6 of the Amendment Act.

Failure to comply with Section 6 is an offence and subject on conviction to a fine not exceeding RM250,000 for a first offence and RM500,000 for a second or subsequent offence in the case of a body corporate and separate penalties including imprisonment in the case of an individual.

3.Existing Franchise registration applied through the Old system

Pursuant to the Amendment Act, all registered franchises shall be deemed expired on 28 April 2022. Therefore, all franchises (whether local or foreign, registered or pending) filed under old MyFEX 1.0 system need to be re-register its franchise under the New MyFEX 2.0 system within a grace period of three (03) years calculated from 1st August 2022. Hence the deadline for all franchisor to file their re-registration with MyFEX 2.0 system due by 31 July 2025.

4. Registration by Franchisee is compulsory under Section 6B of the Amendment Act

The Amendment Act requires a franchisee to also register the franchise through the MyFEX 2.0 system within fourteen (14) days from signing the franchise agreement between the franchisor and the franchisee. Failing to comply the same commits an offence. The general penalty section applies to this offence which may attract a fine of not less that RM10,000 and not more than RM50,000 for a first offence and not less than RM20,000 and not more than RM100,000 for a second or subsequent offence in the case of a body corporate and additional penalties of imprisonment in the case of an individual.

In view of the current function and design of MyFEX 2.0 system only permits franchisors to register an account. Hence it is pertinent to note that the Franchise Registry has indeed imposed an obligation on all franchisors to submit the online application form on behalf of their franchisees in the MyFEX 2.0 system.

Therefore, it is important for both franchisors and franchisees to aware of registering their franchises after execution of the franchise agreement but before the commencement of business operations to avoid being penalised under the Act.

5. Effective Period of re-registration & renewal

Pursuant to Section 10 of the Amendment Act, a franchise registration will only be effective for a period of FIVE (05) years from the date of the written notice endorsed by the Registrar. Pursuant to Section 10A of the amendment Act, the Franchisor is required to apply for renewal of the registration within 30 days from the expiration of the registration. Therefore, it is the obligation for all franchisors to docket the expiry of the effective period of their franchise registration and apply for renewal of the registration on timely basis.

Failing to comply the same commits an offence. The general penalty section applies to this offence which may attract a fine of not less that RM10,000 and not more than RM50,000 for a first offence and not less than RM20,000 and not more than RM100,000 for a second or subsequent offence in the case of a body corporate and additional penalties of imprisonment in the case of an individual.

6.Display of Registration of Franchise at premises

Section 10B of the Amendment Act imposes a new requirement for the franchisor or franchisee to display the registration of the franchise, at all times, in a conspicuous position at the place where the franchisor and franchisee carries its business. Failure to comply with this requirement is an offence.

7. Mandatory term is compulsory to be included in the Franchise Agreement

Pursuant to section 18(6) of the Amendment Act, failure to include all the mandatory requirements in a franchise agreement and provide a minimum cooling off period of seven (7) working days to the franchisee in the Franchise agreement is an offence which may attract a fine of not less that RM10,000 and not more than RM50,000 for a first offence and not less than RM20,000 and not more than RM100,000 for a second or subsequent offence in the case of a body corporate and additional penalties of imprisonment in the case of an individual. Pursuant to S18(2) of the amendment Act, it shall no longer render the agreement as null and void as previously under the old Act.

8. New Fee Structure

The Ministry of Domestic Trade and Consumer Affairs has introduced new official fees such as approval fees for foreign franchisor, renewal fees and increased the fee for existing fees.