Please conduct research on the following points in respect of the Franchise Act:

1. What is the legal effect of cancelling, terminating, suspending a franchise registration

2. In what circumstances can a franchise be cancelled, terminated, suspended
3. What is the legal effect of a franchise registration
4. What are the requirements to file a section 11 application?

1. In what circumstances can a franchise be cancelled, terminated and suspended in Malaysia.

Termination

- A franchisor may terminate the agreement only under specific

circumstances outlined in the Act.
- Section 31 of the Act states that a franchisor cannot terminate a franchise
agreement before its expiration date, except for "good cause."
- "Good cause" includes situations where the franchisee fails to comply with
any terms of the franchise agreement or fails to remedy a breach within a
specific period mentioned in a written notice from the franchisor, which
must be at least fourteen (14) days.
Recent Developments

- In the recent case of Gerbang Alaf Restaurants Sdn Bhd v Chai Su Lin &
Anor[10], the Court of Appeal held that the fact that a failure to comply or
a breach of the terms of the Act has been remedied does not extinguish
the fact that there was a failure to comply or a breach in the first place.
- If the failure to comply or the breach is repeated, even though the earlier
breach has been remedied, the repetitive nature constitutes a repeated
breach of the Act, and Section 31(3)(d) of the Act caters to such
circumstances.
- As such, it is pertinent that the franchisee should always comply with the
terms of the franchise agreement, and that even if a breach is remedied,
repeated instances of non-compliance may still be a cause for
termination.

Cancellation

Failing to re-register following the amendments to the FA 1998

- Failing to re-register any franchise registration under the New System

(MyFEX 2.0) may result in a notice of suspension, termination and
cancellation being issued by the Registrar.
 -

2. What is the legal effect of cancelling, terminating, suspending a franchise registration? - this
is dependant on the terms of the franchise agreement.

Note: prior to the amendment, franchise registrations were indefinite until they were
suspended, terminated or cancelled by the Registrar. Following the amendment, franchise
registrations now comes with a clear expiration date – a five-year term prescribed by the
Registrar which may be renewed within thirty (30) days from the expiration of its
registration.

a. Loss of franchise rights

- The franchisor typically loses the legal authority to grant franchise rights and
control franchise operations under its brand name and proprietary systems.
b. Protect IP rights
- The franchisor retains ownership of its intellectual property, including
trademarks, logos, and trade secrets. After termination, the franchisor can
continue to protect and enforce its intellectual property rights against
unauthorized use by third parties.
- At the end of the franchise relationship, franchisees will generally be
required to return all branded products and cease all use of the franchisor’s
IP rights.
c. Transfer franchise rights
- Depending on the terms of the franchise agreement, the franchisor may
have the right to transfer franchise rights to another party or resell the
territory to a new franchisee. This could involve finding a replacement
franchisee to take over the business operations.
d. Confidentiality obligations
- Confidentiality obligations prevent former franchisees from using any
information to which they had access as franchise owners (i.e. information
contained in the franchisor’s operations manual).
- They also frequently prevent former franchisees from discussing or sharing
any information about their experience within the franchise system.
e. Impact on Third parties
- The cancellation, termination, or suspension of a franchise registration can
also have implications for third parties, such as employees, suppliers, and
 customers. For example, employees may lose their jobs, suppliers may lose a
customer, and customers may need to find alternative sources for goods or
services.
16-Jun-06 (Registration: 14-Feb-07)

3. What is the legal effect of a franchise registration in Malaysia?

Law in Malaysia

1. Prior to the operation of a franchise, a franchisor must make an application to register the
said franchise with the Registrar.
- Case law: Dr Premananthan a/l Vasuthevan v Permai Polyclinics Sdn
Bhd , the High Court held that, if a franchise is not duly registered under
Section 6 of the FA 1998, any franchise contract or agreement made under
such circumstances will be in contravention of the said provision and thus
illegal, ineffective and void.
- Section 6:

- Exemption under section 58:

- Circumstances in which the minister may exercise his discretionary power

under s. 58: to promote economic development, encourage investment, or
address specific circumstances that may warrant deviation from the
standard regulations.

Legal Effects
 a) Legal recognition: Registration under the FA 1998 provides legal
recognition to the franchisor’s franchise system. It confirms that the
franchisor’s business meets the requirements set in the FA 1998.
b) Enforceability of Franchise Agreement: franchisor and the franchisee
are bound by the terms and conditions outlined in the agreement.
c) Protection for franchisees: registered franchisees are afforded
certain protections under the FA 1998. These protections include the
right to receive pre-contractual disclosure from the franchisor, which
helps ensure transparency and fairness in the business. (Section 6
FA)
d) Obligations of franchisors: registered franchisors must fulfil certain
obligations as stipulated in the Act such as providing ongoing
support and assistance to franchisees, maintaining the quality and
standards of the franchise system, and complying with the disclosure
requirements.
e) Renewal and termination: the Act sets out procedures for the
renewal and termination of franchise agreements. Franchise
registration may impact the terms and conditions governing renewal
and termination, ensuring that these processes are conducted fairly
and in accordance with FA 1998. (Section 31 & 32)

4. What are the requirements to file a Section 11 application?

Amendments to documents for registration of a franchise.

 - If there are any material changes to the documents for the registration of a
franchise such as the disclosure document, franchise agreement,
operation and training manuals and such other information or documents
as may be required by the ROF for the purpose of determining the
application, Section 11 of the Act provides that the franchisor must notify
the Registrar of the amendments and obtain the Registrar’s approval.
- Upon obtaining the Registrar’s approval, the franchisor should also provide
a copy of the amended documents to the franchisee. (Section 15)

- Failure by the franchisor to file amendments to the said documents is an

offence (Section 11)
- With penalties ranging from RM 10,000 to RM 50,000 for a first offence,
and RM 20,000 to RM 100,000 for subsequent offences. (Section 39)
- Non-corporate offenders face fines of RM 5,000 to RM 25,000 for the first
offence and RM 10,000 to RM 50,000 for subsequent offence. (Section 39)

References:

https://www.praktis.com.my/all-articles/advising-a-franchisee-on-a-franchise-agreement-and

https://www.kpdn.gov.my/images/dokumen/awam/perundangan/AktaBI/8-bi-Franchise-Act-1998-
as-at-1-1-2013.pdf

https://mahwengkwai.com/registration-franchises-malaysia/
https://www.azmilaw.com/insights/legal-issues-in-franchise-framework/

https://www.skrine.com/insights/alerts/december-2023/court-of-appeal-remedy-is-not-a-cure-for-
repeated-

https://www.lopeslawllc.com/post/navigating-the-termination-of-franchise-agreement-a-guide-for-
franchisees#:~:text=Pay%20All%20Outstanding%20Fees%3A%20Before,fees%2C%20outstanding
%20debts%20and%20more.

https://www.rahmatlim.com/publication/articles/22813/franchises-must-re-register-pursuant-to-
amendments-to-malaysian-franchise-act-1998-coming-into-effect

https://www.goldlawgroup.com/what-are-post-termination-obligations-in-franchising/

https://www.lexology.com/library/detail.aspx?g=1798b730-b0d5-496d-8df1-626f7207207c

a. If it does not comply with the registration requirements as laid down under s. 6
& s. 7 of the FA 1998 (Registration & Application for registration)

b. If the Registrar issues a written order to the franchisor, to suspend, terminate or

cancel the registration of the franchise. (s.10 – period of effectiveness)

i. Failure to comply with requirements of a franchise agreement shall render a

franchise agreement null and void. (s.18(3))
ii. Termination of franchise agreement (s.31)
- Has passed the expiration date of 5 years and has not been renewed within thirty (30)
days from the expiration of its registration.
- Has good cause to terminate. “Good cause” shall include:-
a) Failure to comply with franchise agreement (s.31(2)(a))
b) Failure to remedy any breaches within period stated in the written notice (s.31(2)(b))
c) Makes an assignment of the franchise rights for the benefit of the creditors
d) Franchisor/franchisee becomes bankrupt
e) “” voluntarily abandons the franchised business
f) “” is convicted of a criminal offence which impairs the goodwill associated with the
franchisor’s mark/intellectual property
g) “” repeatedly fails to comply with the terms of the franchise agreement (Gerbang
Alaf v Chai Su Lin)
iii. Failing to re-register following the amendments to the FA 1998
Franchise registration

a) S.6(1) of the FA requires all franchisors to register his franchise with the Registrar
of Franchise (“Registrar”) before franchise business could be operated or offered
for sale to any person.
a) Submission of franchise registration must be accompanied with the following
documents as stipulated under s. 7 of the FA 1998:
 Disclosure documents
 Copy of franchise agreement
 Operation and training manuals of the franchise
 Copy of the latest audited accounts, financial statements and reports
 Any other relevant documents
b) If the franchise registration application is approved, the franchisor shall be
required to pay the fees as prescribed by the Registrar (RM1000)

Legal effect of a franchise registration

a) Protection of Intellectual property rights of the franchisor. This provides legal

protection for the franchisor's brand identity and proprietary business methods.
b) Registered franchises benefit from the enforceability of franchise agreements
under contract law. A registered franchise agreement is a legally binding contract
between the franchisor and the franchisee, governing their rights and obligations
with respect to the franchise relationship.
c) Franchise registration may enhance the credibility and market recognition of the
franchise system. Registered franchises are often viewed as more reputable and
trustworthy by consumers, lenders, and potential investors, which can facilitate
business growth and expansion.
d) Franchise registration may improve access to financing for franchisees. Lenders
and financial institutions may be more willing to extend credit to franchisees
operating within a registered franchise system due to the established track
record and legal protections associated with registered franchises.

What is a franchise?
- Contract or an agreement between 1 or more persons by which: -
a) Franchisor grants franchisee the right to operate a business according to the
franchise system;
b) Franchisor grants the franchisee the right to use a mark, or a trade secret, or any
confidential information or intellectual property owned by the franchisor or
relating to the franchisor;
 c) Franchisor possesses the right to administer continuous control during the
franchise term over the franchisee’s business operations in accordance with the
franchise system; and
d) In return for the grant of rights, the franchisee may be required to pay a fee or
other form of consideration.

- Pre-registration of a franchise
a) Drafting franchise agreement (s.18)
b) Registration of trademarks (s.24)
c) Registration application form
d) Certificate of incorporation
e) Forms 24 & 49
f) Franchisors organisational chart with the names and position of key personnel,
and the franchisor’s business brochures.

Franchise registration

b) S.6(1) of the FA requires all franchisors to register his franchise with the Registrar
of Franchise (“Registrar”) before franchise business could be operated or offered
for sale to any person.
c) Submission of a franchise registration must be accompanied with the following
documents as stipulated under s.7 of the FA 1998:
 Disclosure documents
 Copy of the franchise agreement
 Operation and training manuals of the franchise
 Copy of the latest audited accounts, financial statements and reports
 Any other relevant documents.