UFC Fitness center Australia collapses into administration, a number of gyms shut amid $5m dispute

The mum or dad firms behind a significant Australian gymnasium chain have quietly collapsed into administration after turning into embroiled in a messy $5 million courtroom case with a number of disgruntled franchisee house owners.

UFC Fitness center Australia, which at its peak had greater than 10 health centres in Sydney, Melbourne, Perth and the Gold Coast, is a combined martial arts gymnasium franchise based in 2009.

However late final month, on Could 23, Final Franchising Group Pty Ltd, UFC Fitness center Prospect Pty Ltd and Final Franchising Group Properties Pty Ltd all went into voluntary administration.

These firms held the grasp franchise settlement for UFC Fitness center Australia.

The administration got here a day after two firms behind UFC Fitness center have been ordered to pay $5.2 million to 3 franchisees when a courtroom discovered the corporate and its administrators had “engaged in deceptive and misleading conduct” through the strategy of promoting mentioned franchises to them.

The voluntary administration means these three franchise house owners might battle to get a cent of that cash.

Karim Girgis, the previous proprietor of UFC Balcatta in Perth — a co-owner of one of many three franchises that took the corporate to courtroom and gained — feels “fairly soiled” about the entire course of.

“The fee (of $5.2 million) was due on the twenty second. They went into administration on the twenty third,” the 36-year-old advised information.com.au, including that the authorized charges alone value him and the opposite two enterprise house owners $850,000.

A UFC Fitness center Australia spokesperson mentioned the corporate had appointed directors as a result of it was the “best choice accessible” to stabilise its monetary scenario and added “the corporate retains full confidence sooner or later” of the model’s continued survival in Australia.

The corporate and its administrators are “contemplating a variety of choices” following the courtroom judgement. One of many administrators, Samer Husseini, is already searching for an enchantment, as of Monday.

Originally of final month, Justice Tom Thawley from the Federal Court docket of Australia dominated in favour of the three franchises — UFC Balcatta in Perth, and in addition UFC Citadel Hill and UFC Blacktown, each from Sydney — after a four-year authorized battle.

The Balcatta gymnasium was awarded whole damages of $1,789,848. The Blacktown one’s whole payout got here to $1,955,996 whereas for Citadel Hill it was $1,485,643.

This got here to a complete of $5.2 million.

The choose discovered that the co-directors of UFC Fitness center Australia, Mazen Hagemrad and Samer Husseini, had misrepresented the gymnasium’s monetary place with the intention to promote franchises.

Amongst different issues, the courtroom discovered the administrators claimed two of the franchises have been worthwhile and offered revenue forecasts, when essentially they have been dropping cash.

In addition they mentioned the Balcatta gymnasium’s value of beginning up a franchise inclusive of the $60,000 franchising charge could be a most of $800,000, in line with the judgment, when this value ended up being lots increased. Related representations have been made to the 2 different gyms.

The courtroom judgement, obtained by information.com.au, additionally confirmed that the administrators promised that every soon-to-be gymnasium proprietor would see their buyer base develop to greater than 1200 members within the area of simply 10 months and that they might break even immediately. Once more, this didn’t eventuate.

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Mr Hagemrad, one of many co-directors, additionally claimed to potential patrons that he had “preferential funds” in place that may make “becoming out” their venue right into a UFC fashion gymnasium significantly cheaper, in line with courtroom paperwork.

However actually, Mr Hagemrad had an association to obtain a ten per cent low cost for UFC branded tools which he would then promote onto franchisees at the next value.

The courtroom heard he obtained a dumbbell set for $9,500 however bought it on at $27,250, a 286 per cent value enhance.

“This was extra within the nature of profiteering from franchisees than securing preferential agreements for them with suppliers,” Justice Thawley mentioned within the judgment handed down.

Proof additionally emerged that two companies concerned within the fit-out stage for UFC franchises truly had private hyperlinks to Mr Hagemrad.

Mr Hagemrad’s brother-in-law operated Intrex Tasks Pty Ltd, the “authorised provider” for all of the UFC franchises.

This firm charged $106,000 to the Balcatta franchise through the fit-out course of, in what the courtroom known as “an unexplained cost”. The Balcatta proprietor, Mr Girgis, claimed this value was attributed to “consulting”, regardless that solely a handful of telephone calls occurred between this firm and his builder.

In the course of the cross-examination Mr Hagemrad was accused of receiving “kick-backs” via this enterprise, which he denied.

An organization known as Technique Squared Pty Ltd imported UFC Fitness center tools, with the freight and customs prices then charged to franchisees.

Mr Hagemrad’s spouse was the director of Technique Squared, the courtroom was advised.

He additionally held shares within the firm, however denied his enterprise relationship with UFC Fitness center “enabled his spouse to revenue”.

“There was no proof that the franchisees have been knowledgeable of any connection between Technique Squared and Mr Hagemrad,” Choose Thawley discovered.

Technique Squared charged Mr Girgis $26,620 and $6,651 for its companies.

Choose Thawley additionally declared that he didn’t discover Mr Hagemrad “to be a dependable or credible witness” through the six-day trial.

This isn’t the primary time Mr Hagemrad has been in courtroom.

In 2018, the Federal Court docket discovered Mr Hagemrad “intentionally and dishonestly created pretend gross sales” to promote a Subway franchise, situated in Haymarket in Sydney.

In the course of the hearings, it additionally emerged that one of many franchisee house owners, Laziz Mirdjonov, the proprietor of the Citadel Hill gymnasium, had used funds from the enterprise on private expenditures akin to home and worldwide journey, eating places, luxurious purchasing and two Mercedes Benz.

Mr Mirdjonov advised information.com.au he used an Amex card linked to the Citadel Hill gymnasium for private bills however mentioned he excluded it from the enterprise‘s bills and paid it again. He mentioned he did so to get extra factors on his bank card to make travelling cheaper.

Initially, the choose ordered $2.3 million to be paid again in liabilities to the Citadel Hill franchise however this was revised all the way down to the present determine of $1.4 million upon studying in regards to the additional bills.

Mr Girgis rues the day he ever heard of the UFC Fitness center franchise.

“I began off (franchising) in Jetts Health, after which F45, then UFC Fitness center supplied me a possibility, sadly,” he mentioned.

Throughout the three franchisees — who had by no means interacted with one another previous to the courtroom case — they spent $850,000 in authorized prices.

“We’ve needed to take debt, borrow cash towards property, stick with this enterprise to maintain it going, it’s been very very tough,” Mr Girgis mentioned.

His possibilities of recovering the cash don’t seem promising.

Within the final monetary yr, the UFC Fitness center Australia grasp franchise made a web revenue of simply $302,000, information present, whereas within the present reporting interval, the corporate made even much less, $173,000 in revenue.

Rajiv Goyal & Christopher Johnson of insolvency agency Wexted Advisors have been appointed because the directors of the corporate.

The Balcatta and Citadel Hill gyms have since rebranded to Rival Gyms, whereas the Blacktown enterprise has shut down within the wake of the courtroom judgment, which additionally deemed their franchise commitments have been voided.

Within the weeks and months main as much as UFC Fitness center’s administration, two different impartial franchises additionally shut down.

The UFC gymnasium within the Sydney suburb of Penrith closed at first of March, blaming “Covid disruptions” and the “financial uncertainty” proliferating in Australia.

A UFC franchise in Narre Warren in Melbourne has additionally closed its doorways for good in latest months.

The seven remaining gyms hooked up to the UFC head workplace are nonetheless working because the directors search for patrons.

Directors have kicked off a gross sales marketing campaign for the corporate final Tuesday whereas expressions of curiosity opened up on Friday.

Instantly upon taking on the corporate — the next day in actual fact — the directors shut down its Parramatta department, in western Sydney.

“It was an unprofitable company retailer,” the administrator, Mr Goyal, advised information.com.au. “We exited that retailer instantly upon our appointment.”

Clients from the Parramatta gymnasium have been left fuming, nevertheless, as their membership was robotically transferred to the closest UFC gymnasium, in Wetherill Park, with none session.

Parramatta gymnasium members declare they have been knowledgeable they must put in a 30-day discover interval in the event that they wished to go away the Wetherill Park department, which is able to imply persevering with to pay the $30 every week charge till then.

A buyer, who didn’t need to be named, advised information.com.au they felt “ripped off” and had made a grievance to NSW Honest Buying and selling.

“Rapidly it (the Parramatta gymnasium) simply shut. Inside a day or two the entire premises have been empty,” he mentioned.

The Wetherill Park gymnasium “is simply too distant” for him and but the corporate supplied him “no refund”, as an alternative robotically transferring his membership there.

“They made you cancel, they left it as much as you. They need to be cancelling it for you.”

A UFC Fitness center spokesperson mentioned prospects “got the choice to switch to the close by, bigger Wetherill Park gymnasium the place they could additionally cancel with out penalty”.

This coverage was by no means marketed on social media, and was not communicated to prospects after they introduced it up with a workers member.

The administrator and firm itself additionally appear to be in disagreement in regards to the model’s future.

One other seven gyms have been meant to open later this yr however the administrator mentioned these plans have been placed on maintain in gentle of the corporate’s latest monetary woes.

In the meantime, a UFC spokesperson advised information.com.au “The corporate continues to open new gyms with Woolooware set to open in coming months and others in growth”.