FRANCHISE (AMENDMENT BILL) 2012 (D.R.28/2012 )

Second And Third Reading

SOME  SALIENT POINTS as at 2 July 2012

  1.  SALE AND OPERATION OF A FRANCHISE: The sale and operation of a franchise is deemed to be in Malaysia where an offer to sell or buy a franchise is made outside Malaysia and accepted within or outsideMalaysia.  Previously, if a franchise is accepted outside Malaysia, it will not be deemed to be a franchise in Malaysia and therefore there will be no necessity to comply with the provisions of the Franchise Act 1998(“theAct”). This amendment seeks to expand the scope of the Act to cover franchise transaction which is concluded outside Malaysia and operated within Malaysia.
  2. FRANCHISE CONSULTANT: means a person who provides advice and consultancy to another person on the registration of a franchise business and compliance of related laws.  The term of registration for a franchise broker and franchise consultant is extended from 1 year to 2 years. Failure to renew the registration shall incur a fine.
  3. COMPULSORY REGISTRATION OF FRANCHISOR: A franchisor shall register his franchise with the Registrar before he can operate a franchise business or make an offer to sell the franchise to any person.  Failure to do so is an offence and liable to fine not >RM250K and for 2nd or subsequent offence, to a fine not >RM500K (body corporate) or not >RM100K or imprisonment not >1 year or and for 2nd or subsequent offence, to a fine not >RM250K  or imprisonment not exceeding 3 years or to both.
  4. REGISTRATION OF FRANCHISEE OF FOREIGN FRANCHISOR:  Before commencing the franchise business, a franchisee who has been granted a franchise from a foreign franchisor shall apply to register the franchise with the Registrar by using the prescribed application form and such application shall be subject to the Registrar’s approval.
  5. REGISTRATION OF FRANCHISEE:  A franchisee who has been granted a franchise from a local franchisor or local master franchisee shall register the franchise with the Registrar by using the prescribed registration form within fourteen days from the date of signing of the agreement between the franchisor and franchisee.  Formerly franchisees did not have to register.  Will this cause a floodgate of registrations?
  6. SUBMISSION OF ANNUAL REPORT:  The Registrar shall cancel the registration of the franchise from the register if he is satisfied that the franchisor has failed to submit his annual report to the Registrar as stipulated under section 16 for the duration of five years continuously.
  7. AMENDMENTS TO DISCLOSURE DOCUMENTS: Approved amendments to Disclosure Documents must be submitted to the Franchisee at least 10 days before the franchisee signs the agreement or after the disclosure documents are approved, whichever is applicable.
  8. SUBMISSION BY FRANCHISOR OF A REPORT TO THE REGISTRAR within 6 months from the end of each financial year of the franchise business. Gives more time for the franchisor to submit its annual report from 30 days to 6 months. This is in tandem with the practice of companies regulated under the Companies Act 1965. It also seeks to make it an offence for any person who breaches the provision.
  9. PAYMENT BEFORE SIGNING A FRANCISE AGREEMENT:  Payment of part of franchisee by  a franchisee fee is possible provided that the franchisor shall provide for such payment in writing in the disclosure document, the purpose of for the payment and conditions for the use and refund of the monies.
  10. PROTECTION OF CONFIDENTIAL INFORMATION IS EXTENDED TO COVER(not only the franchisee and his employees) the franchisee, including its directors, the spouses and immediate family of the directors, and his employees.
  11. PROHIBITION AGAINST SIMILAR BUSINESS IS EXTENDED TO COVER (not only the franchisee and his employees) the franchisee, including its directors, the spouses and immediate family of the directors, and his employees.
  12. FRANCHISOR is prohibited from contracting out of the provisions of the Act.
  13. TERMINATION OF FRANCHSISE AGREEMENT:  No franchisor or franchiseeshall terminate a franchise agreement before the expiration date except for good cause. (underlined phrase means addition to existing clause). The ground of “bankrupt and insolvent” is included.
  14. APPLICATION BY A FRANCHISEE FOR EXTENTION OF THE FRANCHISE TERM: By giving a written notice not less than 6 months prior to the expiration of the franchise term.
  15. OFFENCE OF HOLDING OUT AS FRANCHISOR: Liable to fine not >RM250K (body corporate) and for 2nd or subsequent offence, to a fine not >RM500K and for 2nd or subsequent offence, to a fine not >RM250K or imprisonment not >3 years or both (individual)