Did you know about the recent changes made to the Franchise Act 1998 which came into force on 28 April 2022 through the Franchise (Amendment) Act 2020. In this article, we will discuss five major updates to the franchise system in Malaysia.
MYFEX 2.0
With the enactment of the Amending Act, the Registrar implemented MyFEX 2.0, supplanting its predecessor, MyFEX 1.0. Therefore, all franchisors and master franchisees previously registered under MyFEX 1.0 are required to re-register their franchise registrations through MyFEX 2.0 within a three-year grace period ending on July 31, 2025.
Non-compliance within the grace period may prompt the Registrar to issue notices for suspending, terminating, or cancelling franchise registrations. After franchisors and master franchisees have re-registered their franchise registrations via MyFEX 2.0, they must then proceed to re-register each of their franchisees who were previously registered under MyFEX 1.0. Re-registration fees will be waived if completed within the three-year grace period, specifically by July 31, 2025.
Registration of Franchisees in Malaysia now mandatory
The franchisee is now required to be registered pursuant to sections 6A and 6B of the Franchise Act 1998 before commencing their business in Malaysia. There was no such consequence in the past if the franchisee failed to obtain registration.
The Amending Act has brought about substantial revisions to sections 6A and 6B of the Franchise Act 1998. It has transformed the failure of a franchisee to obtain registration into a criminal offense. This change signifies that franchisee registration is no longer a mere formality. Furthermore, under section 39 of the Franchise Act 1998, general penalties now apply to franchisees who do not register with the Franchise Registry.
The Franchise Registry now mandates that all franchisors submit online application forms on behalf of their franchisees through the MyFEX 2.0 system. Moving forward, franchisees will rely on their franchisors to complete their registration under sections 6A and 6B of the Franchise Act 1998, as only the franchisors can currently create accounts in the MyFEX 2.0 system.
It is crucial for franchisees to maintain close communication with their respective franchisors to ensure they are properly registered with the Franchise Registry to avoid general penalties.
Requirement of displaying your Franchise Registration in Malaysia
A new provision, section 10B, has been added to the Franchise Act 1998, mandating both franchisors and franchisees to prominently display their franchise registration at their place of business. Failure to comply with this requirement constitutes an offense, subject to the general penalty outlined in section 39 of the Franchise Act 1998.
As per the recent amendment, franchisors and franchisees must prominently display their franchise registration at their place of business. Failure to comply with this requirement is now considered an offence. This measure aims to increase transparency and ensure that consumers have easy access to essential information about franchise businesses.
Effective Period of Franchise Registration
Previously, the Act stipulated that the registration of a franchise would remain effective indefinitely unless the Registrar issued an order to suspend, terminate, or cancel the registration.
The Amendment Act now specifies that the registration of a franchise will be effective for a defined period. According to the Franchise (Prescription of Period of Effectiveness of Registration) Regulations 2022, this period is set at five years for the registration of a franchise.
The franchisor may apply for renewal of the registration within 30 days from the expiration date of the registration. The five-year period of effectiveness will also apply to the renewed registration period.
The transitional provisions within the Amendment Act stipulate that the prescribed period of effectiveness, now set at five years, will apply retroactively to registrations obtained under the Franchise Act before the Amendment Act took effect. Consequently, all franchisors must be vigilant regarding the expiration of their registration’s effective period and ensure timely renewal applications are submitted.
Requirements of Franchise Agreement
Section 18(2) of the Franchise Act 1998 prescribes the mandatory elements that are required to be present in a franchise agreement. Failure to comply with section 18(2) Franchise Act 1998 would render a franchise agreement null and void. The Amending Act has now made changes to section 18(6) Franchise Act 1998 where franchisors and franchisees can potentially be liable for an offence if they fail to comply with section 18 of the Franchise Act 1998.
Hence, it is crucial that franchisors and franchisees consult their franchise lawyers to review their franchise agreement thoroughly as any non-compliance with section 18 Franchise Act 1998 would result in criminal penalties.
Please feel free to get in touch with us if you have any inquiries regarding your franchise issues in Malaysia. We will be happy to assist you.
Written by:
Hardeep Singh