UFC gym chain collapses amid legal battle with franchisees

The operator of a national UFC gym business has called in administrators owing creditors more than $5m amid a major legal battle with its franchisees.

A UFC Gym Australia has appointed administrators because it was the “best option available” to stabilise its financial situation.

The operator of a national UFC gym business has called in administrators owing creditors more than $5m amid a major legal battle with its franchisees.

Ultimate Franchising Group, which operated eight UFC Gyms predominantly in NSW, appointed administrators Wexted Advisors last month after losing a court battle with three of its franchisees over misrepresentations over the proftability of the businesses.

In a report lodged with ASIC, Wexted partner Rajiv Goyal said the company attributed the failure of the business to successful litigation started by three franchisees.

The Federal Court last month ordered that their franchise agreements be voided and ordered $5.2m be paid by the company to the litigant franchisees. “Shortly after these orders were made, we were appointed as administrators of the group,” Mr Goyal said in his report.

The company, which holds the Australian and New Zealand head franchise for US-based UFC Gyms, offered mixed martial arts, elite coaching and tailored personal training.

Mr Goyal said he is now attempting to sell the group’s business or assets. “Our preliminary investigations indicate the group may have been insolvent from as early as March,” he said. “However, the more definitive date is May 12 when the orders were made in relation to the litigation. The group may have incurred significant debts whilst insolvent and further investigations are required to quantify the debts.”

UFC Gym Australia has called in administrators

Mr Goyal in his report to ASIC said the group recorded trading losses from March resulting in a $100,000 deficit for the financial year on income of $1.6m.

Federal Court judge Tom Thawley held that the group had made misleading misrepresentations to the franchisees in relation to gym profitability and break even membership numbers. Franchisees had paid up to $1.4 m in start up costs and other expenses but had made operating losses of between $391,000 and $962,000.

Judge Thawley said that while the claim by the group that UFC gyms “had a proven business model that worked in Australia was a representation of existing fact,” it was misleading in that some of the UFC Gym franchises were not performing well. Judge Thawley held that both the Balcatta and Blacktown franchises were not profitable at the time.

US-based UFC Gym was founded in 2009 as the first major brand extension of the mixed martial arts fighting franchise and now operates in 40 countries around the world.

Creditors of the group are due to meet this week but Wexted Advisors’ Mr Goyal said it was unclear if they would see any of their money. “Should a sales transaction or deed of company arrangement not eventuate, it is unlikely there will be any meaningful return to creditors as the assets available are minimal,” he said.

A UFC Gym Australia spokesperson told News Corp that the company had appointed administrators because it was the “best option available” to stabilise its financial situation. It added added “the company retains full confidence in the future” of the brand’s continued survival in Australia.