Gym collapses after years-long legal battle against master franchisor

A gym has shut down just months after taking the master franchisor to court and winning in an expensive and drawn out legal dispute.

EXCLUSIVE

A former franchise of a major Australian gym has shut down just months after taking the master franchisor to court and winning in an expensive and drawn out legal dispute.

In June, news.com.au exclusively reported that mixed martial arts gym chain UFC Gym Australia had gone into administration after becoming embroiled in a messy $5 million court case with three disgruntled franchisee owners.

A court ordered UFC Gym Australia to pay $5.8 million to the franchisees, with the judge finding that the company and its directors had “engaged in misleading and deceptive conduct” during the process of selling said franchises to them.

Just a day after the payments fell due, the two companies behind UFC Gym went into administration and one of the directors is seeking an appeal for the court judgement.

Karim Girgis, the former co-owner of UFC Balcatta in Perth — one of the three franchises that took the company to court and won — told news.com.au that he had made the difficult decision to shut down his business

On Tuesday, Mr Girgis, who has since rebranded his company to Rival Gym Balcatta, announced the closure of his gym.

“With all the costs incurred, there’s no opportunity to open elsewhere,” he told news.com.au.

Rival Gym Balcatta’s final day of operation was Tuesday June 15, and auction sales are already underway.

The gym is hosting a closing down sale.

The legal fees alone cost Mr Girgis and the other two business owners $850,000.

He cited the “lingering financial distress” as a result of the four-year-long court case as the reason for his company’s collapse, as well as a complication in the lease agreement with his landlord.

“It’s not easy going through litigation. Not just the financial strain, it’s debilitating, it’s constantly on your mind,” Mr Girgis said.

He is now devoting his time to helping out his black belt jiu jitsu coach at his business, called Salt Water Jiu Jitsu.

“I don’t want people to feel sorry for me,” he added.

“I’m still moving forward with my life, studying law, I’ve nearly finished my law degree.”

Gym members at Rival Balcatta do not need to do anything. He has stopped their direct debit payments and no-one will be left out of pocket.

“The only thing I feel bad about is that their (the customers’) second home is gone,” Mr Girgis continued.

“That’s what I’ve always loved about the fitness industry, the connections you build with people, it’s a shame to see that part of it go.

“In a sense I’m relieved that I can put this behind me. It’s taken all the fun out of the industry that I’ve loved my whole life.”

His gym’s social media accounts were flooded with members lamenting the loss of the company.

In early May, Justice Tom Thawley from the Federal Court of Australia ruled in favour of the three disgruntled franchises — Balcatta, Castle Hill and Blacktown — after a four-year legal battle against the master franchise holder of UFC Gym Australia and New Zealand.

The Balcatta gym was awarded total damages of $1.7 million while the Blacktown one’s total payout came to $1.9 million. The Castle Hill gym was granted $2 million in damages.

As part of their court win, their franchise agreements were voided.

But the Blacktown gym shut down shortly afterwards while the Balcatta and Castle Hill gyms since rebranded to Rival Gyms, although the Balcatta one has now also succumbed.

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Mr Girgis on the opening day of Balcatta UFC in 2018.

Karim Girgis with UFC fighter TJ Dillashaw.

During the six-day civil trial, the judge found that the co-directors of UFC Gym Australia, Mazen Hagemrad and Samer Husseini, had misrepresented the gym’s financial position in order to sell franchises.

The directors claimed two of the franchises were profitable when they were actually losing money, told prospective buyers an estimated cost of starting up various franchises which was much lower than it turned out to be, that there would 1200 members in the space of 10 months and that gyms would break even straight away, according to the court’s findings.

Mr Husseini is seeking to appeal these findings.

Mr Hagemrad, one of the co-directors, also claimed to prospective buyers that he had “preferential payments” in place that would make “fitting out” their venue into a UFC style gym considerably cheaper, according to court documents, when in reality he marked up these prices and took a cut of the profit.

Some of the companies he referred franchises to in order to obtain branded equipment were run by his family members, but he denied during the trial that he received any “kick-backs’.

Maz Hagemrad, a co-director of UFC Gym, was found to have misrepresented the business. Picture: Justin Lloyd.

Hagemrad was called an unreliable witness during the trial. Picture: Justin Lloyd.

An administrator’s report lodged with ASIC and obtained by news.com.au shows that according to the appointed administrators, Rajiv Goyal & Christopher Johnson of insolvency firm Wexted Advisors, the UFC Gym Australia master franchise owes $15,654,000 to unsecured creditors.

A UFC Gym Australia spokesperson said the company had appointed administrators because it was the “best option available” to stabilise its financial situation and added it was “considering a range of options” following the court judgment.

Creditors’ chances of recovering the money don’t appear promising.

In the last financial year, the UFC Gym Australia master franchise made a net profit of just $302,000, records show, while in the current reporting period, the company made even less, $173,000 in profit.

Rajiv Goyal & Christopher Johnson of insolvency firm Wexted Advisors have been appointed as the administrators of the company.

The Balcatta gym has been rebranded to Rival Gym, but then it shut down.

All the equipment is being sold.

At its peak, UFC Gym Australia had more than 10 fitness centres in Sydney, Melbourne, Perth and the Gold Coast.

But earlier this month, news.com.au reported that another UFC Gym franchise had collapsed for reasons not related to the court case.

UFC Macarthur Square, based in Sydney’s south west, went into liquidation on July 11 and all employees were terminated three days later.

According to the liquidator, the tax office issued a penalty notice against Mr Sinosic over an unpaid tax debt, prompting the director to wind up the company.

The collapse of the Macarthur Square branch marks the seventh gym to go under or leave the UFC Gym brand in the past six months.

As well as the three gyms involved in the legal case leaving the UFC Gym brand, a number of other gyms have also gone under in recent days.

The UFC gym in the Sydney suburb of Penrith closed at the beginning of March, blaming “Covid disruptions” and the “economic uncertainty” proliferating in Australia.

A UFC franchise in Narre Warren in Melbourne has also closed its doors for good in recent months.

Then, a day after the UFC Gym Australia brand went into administration, the administrators shut down the company’s Parramatta gym, which was a corporate gym run by head office.

UFC Macarthur Square is the most recent loss to the brand.

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Originally published as Gym collapses after years-long legal battle against master franchisor