The dad or mum providers behind a important Australian gym chain have quietly collapsed into administration right after getting embroiled in a messy $5 million courtroom case with several disgruntled franchisee entrepreneurs.
UFC Health and fitness center Australia, which at its peak had far more than 10 physical fitness centres in Sydney, Melbourne, Perth and the Gold Coastline, is a mixed martial arts health and fitness center franchise established in 2009.
But late final month, on Could 23, Final Franchising Group Pty Ltd, UFC Health and fitness center Prospect Pty Ltd and Best Franchising Group Properties Pty Ltd all went into voluntary administration.
These firms held the learn franchise settlement for UFC Health club Australia.
The administration arrived a working day following two companies behind UFC Gymnasium have been requested to pay $5.2 million to 3 franchisees when a court docket uncovered the corporation and its directors experienced “engaged in misleading and misleading conduct” in the course of the approach of offering mentioned franchises to them.
The voluntary administration suggests these 3 franchise homeowners may wrestle to get a cent of that money.
Karim Girgis, the former owner of UFC Balcatta in Perth — a co-proprietor of one particular of the three franchises that took the enterprise to court and gained — feels “quite dirty” about the full approach.
“The payment (of $5.2 million) was owing on the 22nd. They went into administration on the 23rd,” the 36-calendar year-outdated informed information.com.au, introducing that the authorized costs by yourself cost him and the other two organization proprietors $850,000.
A UFC Health and fitness center Australia spokesperson said the business had appointed administrators mainly because it was the “best possibility available” to stabilise its financial situation and additional “the organization retains entire self-assurance in the future” of the brand’s ongoing survival in Australia.
The firm and its administrators are “considering a array of options” adhering to the courtroom judgement. One of the administrators, Samer Husseini, is previously seeking an enchantment, as of Monday.
At the starting of last month, Justice Tom Thawley from the Federal Court docket of Australia ruled in favour of the a few franchises — UFC Balcatta in Perth, and also UFC Castle Hill and UFC Blacktown, equally from Sydney — soon after a four-yr lawful battle.
The Balcatta health and fitness center was awarded whole damages of $1,789,848. The Blacktown one’s whole payout arrived to $1,955,996 although for Castle Hill it was $1,485,643.
This came to a full of $5.2 million.
The judge found that the co-administrators of UFC Health club Australia, Mazen Hagemrad and Samer Husseini, had misrepresented the gym’s fiscal place in purchase to offer franchises.
Amongst other issues, the courtroom found the administrators claimed two of the franchises have been financially rewarding and supplied gain forecasts, when in actuality they had been losing funds.
They also claimed the Balcatta gym’s price of beginning up a franchise inclusive of the $60,000 franchising charge would be a utmost of $800,000, in accordance to the judgment, when this expense ended up remaining a good deal better. Similar representations ended up designed to the two other fitness centers.
The court docket judgement, attained by information.com.au, also confirmed that the directors promised that each individual shortly-to-be gym owner would see their buyer foundation mature to a lot more than 1200 users in the place of just 10 months and that they would break even straight away. Once again, this did not eventuate.
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Mr Hagemrad, one of the co-directors, also claimed to future customers that he had “preferential payments” in position that would make “fitting out” their venue into a UFC type gym noticeably more affordable, according to court files.
But genuinely, Mr Hagemrad experienced an arrangement to receive a 10 per cent discount for UFC branded products which he would then offer onto franchisees at a bigger price tag.
The court docket listened to he attained a dumbbell established for $9,500 but marketed it on at $27,250, a 286 for every cent price improve.
“This was additional in the nature of profiteering from franchisees than securing preferential agreements for them with suppliers,” Justice Thawley claimed in the judgment handed down.
Evidence also emerged that two corporations included in the fit-out phase for UFC franchises essentially experienced private inbound links to Mr Hagemrad.
Mr Hagemrad’s brother-in-regulation operated Intrex Projects Pty Ltd, the “approved supplier” for all the UFC franchises.
This corporation charged $106,000 to the Balcatta franchise in the course of the in good shape-out system, in what the court docket referred to as “an unexplained charge”. The Balcatta proprietor, Mr Girgis, claimed this value was attributed to “consulting”, even although only a handful of cell phone calls happened involving this company and his builder.
For the duration of the cross-assessment Mr Hagemrad was accused of obtaining “kick-backs” by this enterprise, which he denied.
A organization termed Technique Squared Pty Ltd imported UFC Gym tools, with the freight and customs fees then billed to franchisees.
Mr Hagemrad’s spouse was the director of Tactic Squared, the court docket was explained to.
He also held shares in the business, but denied his company partnership with UFC Health and fitness center “enabled his wife to profit”.
“There was no proof that the franchisees have been knowledgeable of any relationship amongst Approach Squared and Mr Hagemrad,” Decide Thawley located.
Strategy Squared charged Mr Girgis $26,620 and $6,651 for its companies.
Judge Thawley also declared that he did not come across Mr Hagemrad “to be a responsible or credible witness” for the duration of the 6-working day demo.
This is not the very first time Mr Hagemrad has been in court docket.
In 2018, the Federal Court identified Mr Hagemrad “deliberately and dishonestly produced fake sales” to offer a Subway franchise, situated in Haymarket in Sydney.
Throughout the hearings, it also emerged that 1 of the franchisee owners, Laziz Mirdjonov, the owner of the Castle Hill health and fitness center, experienced used resources from the company on own expenditures these as domestic and global vacation, places to eat, luxury procuring and two Mercedes Benz.
Mr Mirdjonov explained to information.com.au he employed an Amex card connected to the Castle Hill gym for individual expenses but explained he excluded it from the business‘s expenses and paid it again. He reported he did so to get much more details on his credit rating card to make travelling cheaper.
Initially, the decide purchased $2.3 million to be paid back in liabilities to the Castle Hill franchise but this was revised down to the recent determine of $1.4 million upon understanding about the extra expenditures.
Mr Girgis rues the working day he ever read of the UFC Fitness center franchise.
“I begun off (franchising) in Jetts Conditioning, and then F45, then UFC Health and fitness center provided me an prospect, unfortunately,” he said.
Across the three franchisees — who had by no means interacted with every single other prior to the court circumstance — they put in $850,000 in lawful charges.
“We’ve experienced to acquire financial debt, borrow dollars against assets, adhere to this business enterprise to hold it likely, it’s been very extremely challenging,” Mr Girgis mentioned.
His prospects of recovering the revenue don’t seem promising.
In the very last fiscal 12 months, the UFC Health and fitness center Australia learn franchise made a internet profit of just $302,000, data exhibit, when in the latest reporting interval, the organization created even fewer, $173,000 in earnings.
Rajiv Goyal & Christopher Johnson of insolvency business Wexted Advisors have been appointed as the directors of the organization.
The Balcatta and Castle Hill gyms have considering that rebranded to Rival Gyms, even though the Blacktown business has shut down in the wake of the court docket judgment, which also considered their franchise commitments were voided.
In the weeks and months top up to UFC Gym’s administration, two other impartial franchises also shut down.
The UFC gymnasium in the Sydney suburb of Penrith closed at the commencing of March, blaming “Covid disruptions” and the “economic uncertainty” proliferating in Australia.
A UFC franchise in Narre Warren in Melbourne has also shut its doors for superior in new months.
The seven remaining fitness centers hooked up to the UFC head business are nevertheless working as the directors search for consumers.
Directors have kicked off a revenue campaign for the company past Tuesday even though expressions of curiosity opened up on Friday.
Quickly on taking above the company — the next working day in reality — the directors shut down its Parramatta branch, in western Sydney.
“It was an unprofitable corporate retail store,” the administrator, Mr Goyal, instructed news.com.au. “We exited that store straight away on our appointment.”
Customers from the Parramatta fitness center have been remaining fuming, on the other hand, as their membership was routinely transferred to the nearest UFC fitness center, in Wetherill Park, without any consultation.
Parramatta gymnasium users assert they have been educated they would have to place in a 30-day see period of time if they wished to leave the Wetherill Park department, which will indicate continuing to pay out the $30 a week cost right until then.
A customer, who did not want to be named, instructed information.com.au they felt “ripped off” and had produced a complaint to NSW Reasonable Investing.
“All of a unexpected it (the Parramatta fitness center) just shut. Within just a day or two the full premises were empty,” he reported.
The Wetherill Park health club “is as well significantly away” for him and still the organization offered him “no refund”, instead mechanically transferring his membership there.
“They made you cancel, they still left it up to you. They should really be cancelling it for you.”
A UFC Fitness center spokesperson claimed customers “were specified the alternative to transfer to the nearby, greater Wetherill Park gymnasium wherever they could also terminate without the need of penalty”.
This policy was by no means marketed on social media, and was not communicated to clients when they brought it up with a team member.
The administrator and organization alone also appear to be in disagreement about the brand’s long term.
An additional seven gyms have been intended to open up later this 12 months but the administrator reported these options have been place on maintain in gentle of the company’s recent economical woes.
Meanwhile, a UFC spokesperson informed information.com.au “The organization proceeds to open up new gyms with Woolooware set to open up in coming months and other people in development”.