In 2011, the franchise industry contributed a total of RM21.48 billion
to the Malaysian economy, equivalent to 2.5% of Malaysia's GDP. Among
the well-known brands are Nelson's, Gloria Jean's and Secret Recipe, to
name a few. In order to encourage healthy competition in this important
industry, the government recently amended the Franchise Act 1998
("Act"). The Franchise (Amendment) Act 2012 ("Amendment Act") is
expected to come into force on Jan 1, 2013. The Amendment Act introduces
three new provisions, amends twenty two sections and deletes two other
sections from the Act. This article focuses on some of the key
amendments to the Act.
Source from (The Sun Daily): http://www.thesundaily.my/news/532948
Published: November 06, 2012
A "franchise" refers to an agreement where the franchisor grants the
franchisee the right to use its trademark as well as certain business
systems and processes to produce and market a good or service according
to certain specifications. In return, the franchisee may be required to a
pay a fee to the franchisor. A "franchisor" refers to a person who
grants a franchise to a franchisee, and a "franchisee" is a person who
accepts a franchise.
B. KEY AMENDMENTS
Compulsory Registration for Franchisees
Presently, only franchisors are required to register with the
Registrar of Franchise. According to the Minister of Domestic Trade,
Cooperative and Consumerism, there were cases where franchisors left
their franchisees without any support or assistance after they
established their franchise. In order to prevent this, the Amendment Act
makes it compulsory for franchisees to register with the Registrar
within 14 days from signing of the franchise agreement. The Ministry
believes this will protect franchisees as they would be able to monitor
the franchisees' progress, and allow the Ministry to offer more
programmes that will enhance the franchisees' competency and
capabilities to enable them to be successful entrepreneurs in their own
right.
Enhancing the Registrar's Powers
Under the Act, a franchisor may apply to the Registrar for
cancellation of the franchise from the register, and the Registrar must
cancel the registration if he is satisfied that the franchisor is no
longer granting rights under the franchise. However, the Registrar does
not have any discretion to cancel the registration of the franchise
without prior application from the franchisor. The Amendment Act allows
the Registrar to cancel the registration of the franchise on his own
accord if he is satisfied that the franchisor has, for example, failed
to submit its annual report for five continuous years or if the
franchisor is insolvent, in addition to the Registrar's present powers.
Confidential Information and Prohibition against Similar Business
Currently, only the franchisee and its employees are restrained from
giving out confidential information contained in the franchise operation
manual or obtained while undergoing training by the franchisor. They
are also prohibited from engaging in other similar businesses to the
franchise operated by the franchisor during the franchise term and for
two years after the arrangement has ended. The Amendment Act widens the
coverage to include the franchisee, its directors and their spouses and
immediate family, and its employees. These amendments should allay
franchisors' fears of franchisees using their ideas and trade secrets to
subsequently compete with their business.
Offence of Holding Out as a Franchise
The Amendment Act also makes it an offence for any person to use the
term "franchise" or any other words indicating that they are carrying on
a franchise when in fact they are not registered or approved by the
Registrar to do so. This amendment is aimed at deterring companies from
misusing the word "franchise" in their business.
Harsher Penalties
The Amendment Act also increases the penalty for offences where no
penalty is expressly provided under the Act. If the offender is a
company, it would be liable to a fine of between RM10,000 and RM50,000,
and for a second or subsequent offence, to a fine of between RM20,000
and RM100,000. If the offender is an individual, he would be liable
either to a fine of between RM5,000 and RM25,000 or to imprisonment for
up to 6 months, and for a second or subsequent offence, either to a fine
of between RM10,000 and RM50,000 or to imprisonment for up to 1 year.
Additionally, the Amendment Act also increases the penalty for offences
prescribed by the Regulations from a fine of RM10,000 to RM50,000 or
imprisonment for up to one year, or both.
C. CONCLUSION
Amending the Act to bring it in line with today's demands is a
sensible and timely move by the government. The amendments give added
comfort to franchisors seeking to protect their intellectual property
rights whilst protecting franchisees from unscrupulous franchisors. The
stiffer penalties should deter non-compliance with the Amendment Act,
and this in turn should increase the confidence of businesses in
deploying and adopting the franchise system as a means to expand their
business. If implemented correctly, the Amendment Act should encourage
innovation and economic growth in Malaysia.
This article is contributed by Nur Ayuni Ab Rahim and Kuok Yew Chen of Christopher Lee & Co (www.christopherleeco.com).
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