Malaysia: Amendments to the Malaysian Franchise Act in force

In brief

On 28 April 2022, the Franchise (Amendment) Act 2020 ("Amendment Act"), which seeks to amend the Franchise Act 1998 ("Act"), came into force. On the same day, various amendments and updates to the franchise regulations have also been passed that include the addition of two new regulations and amendments to three subsisting regulations (collectively, "Regulations"). In this alert, we summarise the key amendments introduced by the Amendment Act and Regulations.


Key amendments

Some of the key amendments to the Act are summarised below:

1. Registration requirement for foreign franchisors

In addition to the requirement to obtain approval under Section 54 of the Act for the sale of a franchise in Malaysia, foreign franchisors are now required to register with the Registrar of Franchise ("Registrar") under Section 6 before the foreign franchisor can make an offer to sell a franchise in Malaysia.

Under the transitional provisions, foreign franchisors who have obtained approval under Section 54 of the Act prior to the Amendment Act's coming into force will be deemed to have registered under Section 6.

2. Registration by franchisees

Under the Amendment Act, it is now an offence if a franchisee of a foreign franchisor or a franchisee of a local franchisor fails to obtain registration under Sections 6A or 6B, respectively.

3. Term of franchise registration

Previously, the registration of a franchise will continue to be effective unless suspended, terminated or cancelled by the Registrar. Under the new Regulations, the registration of a franchise is for a period of five years. The Amendment Act further provides that a franchisor may apply for renewal of the registration of a franchise within 30 days from the expiration of the said registration.

4. Display of registration of franchise

Franchisors and franchisees are now required to display the registration of the franchise in a conspicuous position at their place of business. Failure to comply with this requirement is an offence under the Act.

5. Requirements of franchise agreement

Section 18 of the Act requires a franchise agreement to be in writing and prescribes the minimum terms that must be incorporated therein. While failure to comply with these requirements will no longer render the agreement null and void under the Amendment Act, such failure is now an offence.

6. Regulations

New regulations were introduced to govern appeals against decisions by the Registrar, whilst existing regulations were amended to provide for compoundable offences, to prescribe the qualifications required of a franchise broker and franchise consultant, and to amend the schedule of forms and fees to be submitted with the Registrar.

Looking ahead

The Amendment Act seeks to introduce more stringent requirements and penalties governing franchises in Malaysia. Franchisors and franchisees should assess their level of compliance with the amended Act and undertake necessary remedial measures in anticipation of increased enforcement by the Registrar.

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