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With the passing of a property owner, a grant of representation is required in order to deal with the property. If the property owner is a foreigner and a grant of representation has been obtained in their country of domicile, a letter of representation would first need to be recognised by the Malaysian courts before it can be enforced. This process is known as resealing letters of representation. This article will delve into the process of resealing letters of representation in Malaysia.

The resealing process in Malaysia

The law relating to resealing grant of representation can be found in Part IV of the Probate and Administration Act 1959. Section 52 allows the Malaysian High Courts to reseal both the grant of probate and the letter of administration granted by the court of probate of any Commonwealth country. This means that if the deceased’s family has already obtained a letter of representation in the country of domicile and wishes to deal with the deceased’s assets in Malaysia, they merely need to reseal the representation letter. They do not need to go through the process of applying for a grant of probate or administration in Malaysia, provided that they have already obtained a grant in a Commonwealth country.

It is important to note that in a resealing application the power of the Malaysian courts to reseal a letter of representation is discretionary. The High Court may not allow such application if it appears that the deceased was not, at the time of his death, domiciled within the jurisdiction of the court from which the grant is issued.^[1] In determining whether such seal should be affixed on a grant of probate or letter of administration, the court may require any evidence it thinks fit to determine the domicile of the deceased person.^[2]

In an application to reseal a letter of representation, while it may be common for convenience’s sake to sign a power of attorney to allow the appointed solicitors to deal with the necessary procedures, the petition for the resealing application must be filed in the executor’s name notwithstanding the existence of any power of attorney.^[3] The solicitors appointed may affirm the affidavit verifying the petition on behalf of the executor, but the petitioner must still be the executor.^[4]

In relation to the rights and obligations of the executor, the representative will only acquire the rights and obligations of a lawful executor or administrator on the date when the foreign grant of representation is resealed by the court, not from the date of the original grant.^[5] This is important to determine when the representative shall have the right to institute a suit on behalf of the estate of the deceased.^[6]

Another matter to note is that where a grant of letter of administration is concerned, similar to a fresh application for letter of administration, a security by way of bond for the administration of the estates must be placed with the courts before the court could affix the seal on such letter of administration.^[7]

Letter of representation from non-Commonwealth countries

It is also prudent to note that the Malaysian law does not recognise letters of representation obtained from a non-Commonwealth country. While there are no laws explicitly stating this, it can be inferred from the Probate and Administration Act 1959 which states that the Malaysian High Court will recognise letters of representation made in Commonwealth countries and therefore will reseal them.^[8]

It is more of a general principle as the rationale behind this is due to the reciprocal arrangement with other Commonwealth countries to recognise and enforce their grants of probates. This can also be seen in the UK by way of the Colonial Probates Act Application Order 1965 which lists all Commonwealth countries that are allowed to reseal their grants of probates in the UK.^[9]

In order to administer the deceased’s properties in Malaysia, the representative must apply for a fresh grant of probate or letter of administration in Malaysia. This application is more time consuming than resealing the letter of representation.^[10] However, in such a situation where the letter of representation was obtained in a non-Commonwealth country, a fresh grant or letter of representation will be the only option.

Without a valid grant of probate or letter of administration, it would be legally impossible to deal with any of the deceased’s assets in Malaysia. All relevant authorities require a letter of representation recognized by the Malaysian Court in order to allow a purported representative to deal with the property.

Conclusion

It can be said when resealing letters of representation, there are two processes to follow depending on where the grant of probate and letter of administration were granted. If it were granted by probate courts in Commonwealth countries, then under the Probate and Administration Act 1959, the High Courts have the discretion to reseal the grant of probate and letter of administration. For non-Commonwealth countries, a fresh grant of probate or letter of administration in Malaysia would be needed in order to deal with the deceased’s assets in Malaysia.

If you have any questions or require any additional information, please contact Jeyakuhan Jeyasingam or the partner you usually deal with at Zaid Ibrahim & Co. This article was prepared with the assistance of Nurul Izzah Isa, a Trainee Associate in Zaid Ibrahim & Co.

­This article is for general information only and is not a substitute for legal advice.

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[1] Section 52(a) Probate and Administration Act 1959.

[2] Section 52(b) Probate and Administration Act 1959.

[3] Re Azhar Azizan Harun (As the Absolute Representative of Eleanor Dulcie Robinson) (1998) 7 MLJ 89.

[4] Ibid.

[5] Chung Kok Yeang v Public Prosecutor (1941) 1 MLJ 163.

[6] Issar Singh Son of Bhola Singh & Anor v Samund Singh Son of Mayiah (1941) 1 MLJ 28.

[7] Section 35 Probate and Administration Act 1959.

[8] Section 52 Probate and Administration Act 1959.

[9] Schedule 1 Colonial Probates Act Application Order 1965

[10] Application to reseal a letter of representation takes approximately 2-3 months, while an application for a fresh grant would take an estimated period of 4-6 months.

Released by the Asian Business Law Institute (ABLI) with support from its parent organization Singapore Academy of Law, the Contract Laws of Asia – Limitations of Liability is the fourth full-fledged publication under ABLI’s Contracts Project which aims to produce a set of standard-form contract terms where risks are relatively evenly allocated and which can be valid in a majority of Asian jurisdictions. The first turn of the Model Clauses is published here.

This fully-cited, 99-page publication considers 12 jurisdictions and governing laws that are high priorities for parties contracting across borders in the Asia Pacific, and focuses on:

• Operation of exclusion and limitation of liability clauses in contracts in select common law jurisdictions, such as their requirements, restrictions (at common law and by statute, where applicable) and interpretation, whether non-contractual wrongs can be excluded and limited, etc.; and
• Operation of exclusion and limitation of liability clauses in contracts in select civil law and hybrid jurisdictions, such as whether different standards apply to specific types of contracts or under specialized laws.

Lee Lily @ Lee Eng Cher, Partner, authored the chapter for Malaysia in the publication.

The publication is available here. In addition to this publication and the Model Clauses, the team has also contributed to earlier publications on indemnity clauses and liquidated damages and penalty clause under this project.

The Malaysia Competition Commission (MyCC) is conducting an online public consultation to obtain feedback on the proposed integration of Competition Impact Assessment (CIA) into Regulatory Impact Analysis (RIA). The aim of the consultation is to oversee the integration of CIA into RIA and its importance to the rule making process. This ensures that new regulations issued (or review of existing regulations) comply with competition law and are in line with Good Regulatory Practice (GRP). The consultation is to allow stakeholders to understand the framework of CIA and obtain feedback to better understand the needs, concerns and perspectives of regulators.  

The “Consultation Session for the Proposed Integration of Competition Impact Assessment (CIA) into Regulatory Impact Analysis (RIA)” is available both in English and Bahasa Malaysia.  

In addition to submitting general feedback, there is also a survey titled “Survey for Consultation Session for the Proposed Integration of Competition Impact Assessment (CIA) into Regulatory Impact Analysis (RIA)” available both in English and Bahasa Malaysia.

What is Regulatory Impact Analysis (RIA)?

Regulatory Impact Analysis or “RIA” is the process of systematically analysing and communicating the impacts of proposed regulations or review of existing regulations. The essential characteristic of RIA is its informed and evidence-based decision-making for regulatory intervention through analysis of problems and solution options, stakeholder consultation, a cost-benefit analysis, and implementation strategy.

What is Competition Impact Assessment (CIA)?

Competition Impact Assessment or “CIA” is the process of examining the competition effects of laws and regulations to ensure that they are pro-competitive. This integration process intends to show the regulators the methodology that can be adopted to examine the laws and regulations.

CIA is important to ensure that the laws and regulations do not bring unnecessary restraints to competition and help find alternatives that could still achieve the same objectives the regulators had intended to gain.

CIA Integration into RIA

It is important to note that CIA is already an existing component under the RIA framework as provided under the National Policy on Good Regulatory Practice (NPGRP). It is only a matter of putting into effect this requirement after over a decade of Good Regulatory Practice (GRP) implementation in Malaysia.

To support the integration, MyCC has developed a comprehensive toolkit comprising three main components:

• Part I: CIA Framework;
• Part II: CIA Checklist (for the initial screening process); and
• Part III: CIA Guideline (to assist regulators in preparing CIA).

Part I: CIA Framework

The current RIA process currently entails three stages:

• Stage 1: Digital Regulatory Notification (DRN)
• Stage 2: Initial Assessment Stage
• Stage 3: Final Assessment Stage

To incorporate CIA, the current three-stage process will remain but there will be some changes in each stage, as illustrated below.

Source:  Consultation for the Proposed Integration of Competition Impact Assessment (CIA) intoRegulatory Impact Analysis (RIA)

Part II: CIA Checklist

The CIA Checklist is a set of four main questions each with sub-questions to assist regulators in identifying potential competition concerns early in the policy development process i.e. during Stage 1: Digital Regulatory Notification (DRN).  

In the event that the CIA Checklist is triggered i.e. the questions are answered in the affirmative, further investigation of the anti-competitive practices would be required in Stage 2: Initial Assessment Stage.

Part III: CIA Guideline

The CIA Guideline is a detailed technical document on competition assessment which contains key questions to be considered when performing CIA. The CIA Guideline includes requirements that needs to be fulfilled by regulators when the CIA Checklist is triggered.

These requirements are to be undertaken during Stage 2: Initial Assessment Stage and specifically apply for Element 3: Options and Element 4:Impact Analysis of the RIA process.

The consultation is open from 13 June 2023 until 21 July 2023.

For more details on the consultation document, including the survey and feedback submission, please visit Malaysia Productivity Corporation’s Unified Public Consultation (UPC) portal here.

Global Growth of Sustainable Finance

The World Investment Report 2022, released by the United Nations Conference on Trade and Development (“UNCTAD”), has shown strong growth in sustainable finance in global capital markets. UNCTAD estimates that the value of sustainability-themed investment products in global financial markets amounted to USD5.2 trillion in 2021, up 63% from 2020. These products include (i) sustainable funds and (ii) sustainable bonds, including green, social and mixed-sustainability bonds. The number of sustainable funds reached 5,932 by the end of 2021, up 61% from 2020. The total assets under management (AUM) of these funds reached a record USD2.7 trillion, an increase of 53% from the previous year (figure 1). [1]
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Strong growth in sustainable finance is primarily driven by stock exchanges and other market operators, by integrating ESG considerations in market infrastructure. The regional exchanges across the ASEAN region, through the ASEAN Capital Markets Forum [3] (“ACMF”), have also collaborated to push the sustainable finance agenda across the region.

National initiatives under the SRI Roadmap

On a national level, the Securities Commission Malaysia (“SC”) has undertaken various initiatives to support the development of a holistic sustainable and responsible investment ecosystem under the Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap). These include the release of the Sustainable and Responsible Investment-linked (SRI-linked) Sukuk Framework [4] and the expansion of the SRI Sukuk and Bond Grant Scheme to include issuances under the SRI-Linked Sukuk Framework and the ASEAN Sustainability-Linked Bond Standards. [5]

Revised Guidelines on Sustainable and Responsible Investment Funds

On 17 February 2023 the SC revised its Guidelines on Sustainable and Responsible Investment Funds (“the Guidelines”) following the introduction of the ASEAN Sustainable and Responsible Fund Standards. This is timely given that a total of 58 Sustainable and Responsible Investment Funds with RM7.05 billion net asset value were offered in Malaysia as at 31 December 2022. [6]

The revised Guidelines has been rearranged and consists of three parts, namely:

• Part A: Sustainable and Responsible Investment (“SRI”) Fund;
• Part B: ASEAN Sustainable and Responsible Fund Standards [7] (“ASEAN SRF Standards”); and
• Part C: Application to Qualify as an SRI Fund and an ASEAN Sustainable and Responsible Fund.

Lastly, it is worth noting that a tax exemption on the statutory income derived from fund management services of managing a fund in accordance with the Guidelines is made available under the Income Tax (Exemption) (No.5) Order 2018 and Income Tax (Exemption) (No.5) Order 2021. [19] Chapter 5 of the Guidelines set out the qualifying conditions for a tax exemption in relation to managing an SRI Fund.

Commentary

The revision to the Guidelines results in the expansion of the pool of funds that may be eligible to qualify as an SRI Fund. Further, the standardisation of the ASEAN SRF Standards would also enable fund managers to tap into a regional pool of investors (not just at national level). With this widening pool of sustainable funds on a regional level, we are hopeful that this would meet the increasing demands for sustainable funds from investors in general. This in turn would lead to a stronger growth in the sustainable finance products space in the equity capital market, hopefully matching the strong growth of sustainable bonds.

This article was authored by Andreanna Ten. If you have any questions or require any additional information, please contact the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

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[1] Please see UNCTAD, “Chapter IV Capital Markets and Sustainable Finance” in World Investment Report 2022 (9 June 2022) at <https://unctad.org/system/files/official-document/wir2022_ch04_en.pdf>for further details.

[2] Source: UNCTAD (based on Morningstar Data). UNCTAD, “Chapter IV Capital Markets and Sustainable Finance” in World Investment Report 2022 (9 June 2022) at<https://unctad.org/system/files/official-document/wir2022_ch04_en.pdf>.

[3] The ASEAN Capital Markets Forum (“ACMF”) is a forum which comprises capital market regulators from ASEAN countries whose primary task is to promote greater integration and connectivity of regional capital markets.

[4] Please refer to our article on the Introduction of Sustainable and Responsible Investment (SRI)-Linked Sukuk Framework.

[5] Please see Securities Commission Malaysia, ‘Driving Greater Growth in Sustainable and Responsible Investment - Enabling a More Relevant, Efficient and Diversified Market’ for further details.

[6] Securities Commission Malaysia, ‘Driving Greater Growth in Sustainable and Responsible Investment - Enabling a More Relevant, Efficient and Diversified Market’.

[7] The ASEAN SRF Standards aims to provide the minimum disclosure and reporting requirements that can be consistently applied to collective investment schemes (“CIS”) that seek to qualify under the ASEAN SRF Standards, considering the rise of CIS with ESG investment focus and the need for a comparable, uniform and transparent disclosure of information to mitigate the risk of greenwashing. Please see ASEAN Sustainable and Responsible Fund Standards for further details on the ASEAN SRF Standards.

[8] Paragraphs 3.01(a) and 3.03(b) of the Guidelines.

[9] Paragraphs 3.04 and 3.05 of the Guidelines.

[10] Such strategies include ESG integration, ethical and faith-based investing, impact investing, negative screening, positive screening, thematic investments, and any other ESG-related strategies, as may be authorised by the SC. Please see guidance to paragraph 3.08 of the Guidelines for further guidance on such strategies.

[11] Paragraph 3.08 of the Guidelines.

[12] Paragraph 3.09 of the Guidelines.

[13] Paragraphs 4.03 and 4.04 of the Guidelines.

[14] Paragraph 4.05 of the Guidelines.

[15] Paragraphs 4.06 and 4.07 of the Guidelines.

[16] Paragraphs 4.08 to 4.16 of the Guidelines.

[17] Paragraphs 4.17 to 4.20 of the Guidelines.

[18] Paragraph 7.07 of the Guidelines.

[19] Appendix I, the Guidelines.

In recent years, the Malaysian government has taken various initiatives to revamp insolvency laws with the goal of assisting the public to cope with financial difficulties arising from the Covid-19 pandemic.

With the amendment to the Insolvency Act in 2020, the bankruptcy threshold in Malaysia is currently set at RM100,000, which was raised from the original RM50,000. This was the second increase of the bankruptcy threshold within the span of a few years, with the previous increase from RM30,000 to RM50,000 in 2017.

As it stands today, a creditor may not file for bankruptcy action against a debtor if the amount of the debt is less than RM100,000.

Automatic and faster discharge of bankruptcy?

Bankruptcy is a serious matter and has grave implications on the bankrupt individual. A discharge, in essence, is a reset button, releasing the bankrupt from his debts to allow him to start afresh.

During the Budget 2023 Presentation, Prime Minister Datuk Seri Anwar Ibrahim announced that the government is looking to further revamp the Insolvency Act 1967 to ensure that individuals who are bankrupt could be discharged more quickly.

Among the immediate initiatives to be implemented would be individuals, whose bankruptcy cases are of a debt of less than RM50,000 (small-scale debt), could be discharged by the Director General of Insolvency’s Certificate with effect from 1 March 2023.

The Guidelines, issued by the Malaysian Department of Insolvency, for the discharge of bankruptcy with small-scale debts are summarised in the table below:

For more detailed information, please refer to the Malaysia Department of Insolvency.  

The proposed amendments to the Insolvency Act 1967, which is expected to be tabled in the next parliamentary sitting in May-June 2023, if passed, would further ease the process of discharge of bankrupts. Among the amendments proposed are:

1. the setting of time limits for the filing of Proof of Debt Forms by Creditors (section 42 and Schedule C of Insolvency Act 1967) to avoid the issue of late filing which could make it difficult to discharge bankrupt individuals;
2. to make improvements to the automatic discharge provisions under section 33C of Insolvency Act 1967 so that bankrupt individuals can be discharged from bankruptcy in a shorter period or automatically;
3. to make improvements to section 42 and Schedule C of Insolvency Act 1967 by abolishing the obligation to hold the first meeting of creditors so that the bankruptcy administration can continue immediately; and
4. to add category of cases that can be discharged using the Director General of Insolvency’s Certificate, for example, bankrupt individuals aged 70 and above, for bankrupt individuals who are incapacitated because they have been diagnosed as mentally ill under the Mental Health Act 2001.

If you have any questions or require any additional information, please contact Khoo Kay Ping, Chuah Jo-Shua, Chong Siau Fong, or the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

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In general, a homebuyer who wishes to file a claim with the Homebuyer Claims Tribunal (“the Tribunal”) can only do so if the award sought does not exceed RM50,000. This is prescribed by section 16M of the Housing Development (Control and Licensing) Act 1966 (“HDA 1966”). Further, section 16Q provides that the claim in the same matter cannot be split for the purpose of meeting the monetary threshold to fall under the jurisdiction of the HDA 1966 and the Tribunal.

In the case of Remeggious Krishnan v SKS Southern Sdn Bhd [2023] 4 CLJ 36, the Federal Court held that the Tribunal is allowed to hear split claims in respect of the same property. The monetary limit of RM50,000 applies for each claim and not a combination of the split claims.

Background facts

In this case, the purchaser bought an apartment unit (“Property”) in a residential project developed by SKS Southern Sdn Bhd. Under the sale and purchase agreement (“SPA”) entered into by both parties, the developer agreed to deliver vacant possession of the Property to the purchaser when the water and electricity supplies are ready for connection to the unit.  However, the Property was delivered with no electricity connection to the Property.

The purchaser filed two separate claims with the Tribunal against the developer:

1. a non-technical claim, grounded on the breach of manner of delivery of the Property with the claim amounting to RM49,832; and
2. a technical claim, grounded on the failure of the respondent to provide adequate ceiling height and protruding beams and pillars with the claim amounting to RM40,000.

The Tribunal only heard the non-technical claim and awarded a sum of RM16,452.05 and costs of RM400 in favour of the purchaser (“award”) for the delay in connection of electricity.

Aggrieved with the award, the developer applied for leave to apply for a judicial review against the Tribunal and the purchaser. In the application for judicial review, the developer sought to declare the impugned decision as invalid, null and void and of no effect and that an order of certiorari be issued to quash the award.

The High Court held that the split claims were for different matters and dismissed the application. The developer appealed to the Court of Appeal, which held that there is no prohibition against filing split claims, provided that the total amount is within the jurisdiction of the Tribunal. Dissatisfied, the purchaser obtained leave to file an appeal with the Federal Court.

Questions of law

Two issues on questions of law were raised:

1. in view of sections 16Q and 16M of the had 1966, whether there was a jurisdiction for the Tribunal to hear two separate claims in respect of the same subject property, where the total amount of dispute of these two claims exceeded the monetary jurisdiction of RM50,000; and
2. whether the developer could be exempted to pay damages to the purchaser when the developer was in breach of the manner of delivery of vacant possession of the property as prescribed in Schedule H of the HDA 1966 so long as the developer was still within the time frame to deliver vacant possession of the property.

Decision by the Federal Court

Question 1: Held in the affirmative.

• The purchaser may file split claims in respect of different and distinct matters. The words “same matter” in section 16Q of the HDA 1966 could only mean the same issue or type of claim and not the same property. There were two different matters in the present case i.e., one was for technical matter and the other was for non-technical matter. As such, section 16Q of the HDA 1966 was inoperative.
• The monetary jurisdiction of the Tribunal of RM50,000 in section 16M of the HDA 1966 only applies to “a claim” and not “all the claims”. Thus, as long as each of the purchaser’s claims in respect of different and distinct matters did not exceed the monetary jurisdiction of the Tribunal, the purchaser was not in violation of section 16M of the HDA 1966.

Question 2: Held in the negative.

• The time frame for delivery of vacant possession was separate from the manner of delivery of vacant possession.
• The purchaser was entitled to claim compensatory damages for breach of clause 27 of the SPA which provides “ready for connection”. This means that the electrical points should be fully functional and supply is available for tapping into the property. The developer breached the manner of the delivery of vacant possession of the property since there was no electrical supply ready for connection at the time.

The Federal Court was of the view that the HDA was enacted as a piece of social legislation to protect house buyers. With that in mind, any term or provision in the statute must be interpreted in a way which ensures maximum protection for the house buyers against the developer. It was therefore imperative that section 16M and section 16Q of the HDA 1966 be interpreted in such a way as to provide protection of house buyers in keeping with the intention of Parliament.

The objective is to protect the aggrieved purchasers of their rights to resort to the Tribunal, which provides for an easier, cheaper and quicker avenue for aggrieved purchasers to claim damages or compensation from the housing developers.

Commentary

Based on this latest Federal Court’s decision especially with regards to the monetary jurisdiction, it is clear that a house buyer can now lodge with the Homebuyer Claims Tribunal separate claims for different matters in respect of the same property, as long as each claim does not exceed the Tribunal’s jurisdiction of RM50,000.

If you have any questions or require any additional information, please contact Chuah Jo-Shua or the partner you usually deal with at Zaid Ibrahim & Co. This article was prepared with the assistance of Desmond Tang Soon Ze, a Trainee Associate at Zaid Ibrahim & Co.

This article is for general information only and is not a substitute for legal advice.

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Recent amendments to the Franchise Act 1998 (“FA”) have introduced significant changes to the franchise industry. The Franchise (Amendment) Act 2020 (“Amending Act”), gazetted on 6 March 2020 and which came into force on 28 April 2022, introduces more stringent requirements and provides a leveling field between local and foreign franchisors. In this article, we will discuss three major updates to the franchise system in Malaysia.

Launch of the MyFex 2.0 system

In line with the coming into force of the Amending Act, the Franchise Registry, under the Ministry of Domestic Trade and Costs of Living (“KPDN”), launched a new online portal known as MyFex 2.0 (https://myfexv2.kpdn.gov.my/) on 29 July 2022. The portal replaces the previous MyFex 1.0 system and provides for the registration, maintenance and renewal of franchises in Malaysia. According to the KPDN, the MyFex 2.0 system was introduced so that the various requirements of the Amending Act can be met accordingly, in line with the enforcement of the FA.

It is important to note that the launch of MyFex 2.0 system has also resulted in the expiry of all existing franchise registrations in Malaysia. All existing franchisors (foreign and local) are required to re-register their franchises under the MyFex 2.0 system, with a grace period of three years (starting from 1 August 2022) granted to all existing franchisors to complete the re-registration process.

Key amendments to the Franchise Act 1998

There are a number of key amendments made by the Amending Act to the FA which existing and potential franchisors and franchisees in Malaysia should be aware of. They include the following:

Franchise registration requirement under section 6 of the FA is now applicable to a foreign franchisor

Prior to the Amending Act, a foreign franchisor is only required to obtain the Franchise Registrar’s approval pursuant to section 54 of the FA before it can proceed to execute a franchise agreement with its franchisee in Malaysia. In contrast, a local franchisor is required to register its franchise pursuant to section 6 of the FA before executing a franchise agreement. It is now compulsory for all foreign franchisors to comply with both sections 6 and 54 of the FA. This legislative amendment reinforces the Court of Appeal’s judgment in Dr HK Fong Brainbuilder Pte Ltd v SG-Maths Sdn Bhd & Ors [2021] 1 MLJ 549 which affirmed the High Court’s finding that the registration requirement undersection 6 of the FA is applicable to a foreign franchisor and is not limited to a local franchisor only.

There were initial concerns that a foreign franchisor would need to submit two separate applications to comply with the requirements of sections 6 and 54 of the FA. However, in practice, there is no longer any distinction in the online application form for franchise registration in MyFex 2.0 system, unlike the previous MyFex1.0 system where there are different requirements in the online application form that is required to be submitted by a local franchisor and a foreign franchisor. Both local and foreign franchisors are currently required to complete the same online application form and submit the same Franchise Disclosure Document and other documents as required in section 7 of the FA for franchise registration. Other documents to be submitted include the operation manual, training manual, copy of the latest audited accounts and any other additional documents as required by the Franchise Registrar.

It is anticipated that this legislative amendment would result in a level playing field between local and foreign franchisors, considering that in the past, foreign franchisors have an advantage over local franchisors since they are not subjected to the more onerous requirements under section 6 of the FA.

Effective Period of Franchise Registration

The pre-amended section 10 of the FA provides that the registration of a franchise shall continue to be effective unless the Franchise Registrar issues a written order to the franchisor to suspend, terminate or cancel the registration of the franchise. This meant that a franchise registration will last indefinitely with no specified term unless it is suspended, terminated or cancelled by the Franchise Registrar.

The amended section 10 now stipulates that a franchise registration shall continue for a period as may be prescribed by the regulations under the FA. Under the Franchise (Prescription of Period of Effectiveness of Registration) Regulations 2022, the period of effectiveness of a franchise registration is now limited to five years and it has to be renewed periodically every five years. The Amending Act also introduces the new provision, section 10A, which governs the renewal of franchise registration. An application to renew a franchise registration must be submitted together with prescribed fees within 30 days from the expiration date of the franchise registration.

Registration of Franchisees

Before commencing business, a franchisee is required to be registered pursuant to sections 6A and 6B of the FA (depending on whether the franchisor is local or foreign).  In the past, there is no consequence prescribed in the FA if the franchisee fails to obtain registration.  

The Amending Act has inserted new provisions into sections 6A and 6B of the FA which makes it a criminal offence if a franchisee fails to obtain registration. The registration of franchisees is no longer a formality. The general penalty provision in section 39 of the FA ^[1] now applies to franchisees that fail to register with the Franchise Registry. The latest amendments show that there is a strong intention on the part of KPDN to strengthen enforcement efforts against unregistered franchisees that operate in Malaysia.

It is pertinent to note that the Franchise Registry has imposed an obligation on all franchisors to submit the online application form on behalf of their franchisees in the MyFex 2.0 system. This is a departure from the previous practice in MyFex 1.0 system where each franchisee is responsible to handle its own registration. Moving forward, franchisees will need to rely on their respective franchisors to obtain franchisee registration under sections 6A and 6B of the FA. This is as the current function and design of MyFex 2.0 system only permits franchisors to open an account. An unintended consequence that could arise, is that a franchisee could be found liable for failing to register itself due to the inaction of its franchisor. Therefore, it is crucial for franchisees to follow up very closely with their respective franchisors to ensure that they are properly registered under sections 6A and 6B of the FA.

Public display of franchise registration

A new section has been created, section 10B, which makes it compulsory for a franchisor and franchisee to display the franchise registration at a conspicuous position in the place of business. Failure to do so is an offence which attracts the general penalty in section 39 of the FA. This is another obligation imposed by the Amending Act to enable easier monitoring of compliance by enforcement officers from the KPDN.

Mandatory elements in a franchise agreement

Section 18(2) of the FA prescribes the mandatory elements that are required to be present in a franchise agreement. Pursuant to section 18(3) of the FA, failure to comply with section 18(2) would render a franchise agreement null and void. Section 18(3) has been removed by the Amending Act. The Amending Act has now made changes to section 18(6) where franchisors and franchisees can potentially be liable for an offence if they fail to comply with section 18 of the FA.

The removal of section 18(3) of the FA suggests that a franchise agreement may still be enforceable notwithstanding that it is non-compliant with section 18 of the FA. Nevertheless, section 39(2)(a) of the FA still permits the Court to declare a franchise agreement to be null and void after sentencing a franchisor that is found guilty of an offence.

Hence, it is crucial that franchisors and franchisees consult their lawyers to review their franchise agreement thoroughly as any non-compliance with section 18 would result in criminal penalties.

Revision of Fees

The KPDN has initiated an overhaul of the Third Schedule of Franchise (Forms and Fees) Regulations 1999 which contains the list of fees that are payable for various franchise matters under the FA. The revision of fees can be found in the Franchise (Forms and Fees) (Amendment) Regulations 2022.

Prior to the amendments, there are only several matters which require payment to be made to the Franchise Registry and they are approval of franchise registration, processing of franchise registration, processing of amendments to disclosure documents and processing of registration of franchise broker.

Payment of fees is now extended to a number of other matters including renewal of franchise registration, registration of franchisee and registration of franchise consultant. There is a distinction in the amount of fees payable by a local franchisor and foreign franchisor for franchise registration.

A summary of selected fees areas follows:

Final Remarks

The Amending Act has certainly brought about some long-awaited revisions to the FA that resolve existing ambiguities within the original legislation. Franchisors and franchisees are now subjected to stricter requirements under the FA due to the new changes that are brought by the Amending Act. The imposition of criminal sanctions for non-compliance of various provisions in the FA signals a strong message from the KPDN to franchisors and franchisees to take their obligations seriously.

The revision of the schedule of fees by the KPDN for franchise matters as well as the need for periodic renewals of franchise registration has resulted in a notable increase in costs that are required to run a franchise business in Malaysia, especially for foreign franchisors and their franchisees. Nevertheless, it seems that KPDN has chosen to impose lower fee rates to local franchisor and their franchisees to encourage more local companies to adopt this mode of business. It remains to be seen whether the overall increase in the costs of registering and maintaining a franchise registration would create barriers to entry or discourage foreign companies from participating in the franchise system in Malaysia.

For further enquiries on franchise matters, you may contact Jonathan Lim Hon Kiat, Stanley Lee Wai Jin, or Nurul Syahirah Azman of Zaid Ibrahim & Co.

This article is for general information only and is not a substitute for legal advice

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[1] A person who commits an offence under the FA for which no penalty is expressly provided shall, on conviction, be liable:

1. if such a person is a body corporate, to a fine of not less than RM 10,000 and not more than RM50,000 and for a second or subsequent offence, to a fine of not less than RM20,000 and not more than RM 100,000
2. if such a person is not a body corporate, to a fine of not less than RM 5,000 and not more than RM 25,000 or to an imprisonment for a term not exceeding 6 months, and for a second or subsequent offence, to a fine of not less than RM 10,000 and not more than RM 50,000 or to imprisonment for a term not exceeding 1 year.

As part of the revised Budget 2023, tabled on 24 February, the Malaysian government revealed its plan to allow the issuance of dual-class shares on Bursa Malaysia. This measure is to encourage the listing of local high-growth technology companies in Malaysia. This move is welcomed by the Securities Commission Malaysia (“SC”) as one of the measures to enable the capital market and its supporting ecosystem to serve the needs of the domestic economy and business.

Contrary to the “one share, one vote” principle, the concept of dual-class shares allows companies to issue to shareholders shares which carries disproportionate voting rights, also known as weighted voting rights. Under this structure, there are at least two classes of shares – one with limited voting power and the other with significantly more voting power. This means that certain individuals or group of shareholders, such as founders, will hold superior voting shares while other shares, offered to the public, have inferior voting rights. This is particularly enticing for founders or entrepreneurs of a company who would be permitted to hold shares with superior voting to retain control over the management of the company while allowing sufficient funding to expand the business.

However, this also raises corporate governance concerns that shareholders with superior voting shares may become deeply rooted in the management of the company or seek to extract excessive personal benefit, to the detriment of the minority shareholders. The current approach adopted by regulators in other jurisdictions allowing dual-class shares, such as Hong Kong and Singapore, is to allow listing of companies with dual-class shares structure coupled with some safeguards or restrictions to protect minority shareholders. For example, by imposing a maximum cap of voting differential ratio and by requiring certain shareholders’ resolutions to be decided on a “one share, one vote basis”.

The SC has not yet indicated its approach on the implementation of dual-class shares as details have not been announced at this juncture. We will continue to monitor developments and provide updates.

If you have any questions or require additional information, please contact Joan Ting or the partner you usually deal with at Zaid Ibrahim & Co.