UFC Gym Australia collapses into administration, multiple gyms close amid $5m dispute

The parent companies behind a major Australian gym chain have quietly collapsed into administration after becoming embroiled in a messy $5 million court case with several disgruntled franchisee owners.

UFC Gym Australia, which at its peak had more than 10 fitness centres in Sydney, Melbourne, Perth and the Gold Coast, is a mixed martial arts gym franchise founded in 2009.

But late last month, on May 23, Ultimate Franchising Group Pty Ltd, UFC Gym Prospect Pty Ltd and Ultimate Franchising Group Properties Pty Ltd all went into voluntary administration.

These companies held the master franchise agreement for UFC Gym Australia.

The administration came a day after two companies behind UFC Gym were ordered to pay $5.2 million to three franchisees when a court found the company and its directors had “engaged in misleading and deceptive conduct” during the process of selling said franchises to them.

The voluntary administration means those three franchise owners may struggle to get a cent of that money.

Karim Girgis, the former owner of UFC Balcatta in Perth — a co-owner of one of the three franchises that took the company to court and won — feels “quite dirty” about the whole process.

“The payment (of $5.2 million) was due on the 22nd. They went into administration on the 23rd,” the 36-year-old told news.com.au, adding that the legal fees alone cost him and the other two business owners $850,000.

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 “the company retains full confidence in the future” of the brand’s continued survival in Australia.

The company and its directors are “considering a range of options” following the court judgement. One of the directors, Samer Husseini, is already seeking an appeal, as of Monday.

At the beginning of last month, Justice Tom Thawley from the Federal Court of Australia ruled in favour of the three franchises — UFC Balcatta in Perth, and also UFC Castle Hill and UFC Blacktown, both from Sydney — after a four-year legal battle.

The Balcatta gym was awarded total damages of $1,789,848. The Blacktown one’s total payout came to $1,955,996 while for Castle Hill it was $1,485,643.

This came to a total of $5.2 million.

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.

Among other things, the court found the directors claimed two of the franchises were profitable and provided profit forecasts, when in actuality they were losing money.

They also said the Balcatta gym’s cost of starting up a franchise inclusive of the $60,000 franchising fee would be a maximum of $800,000, according to the judgment, when this cost ended up being a lot higher. Similar representations were made to the two other gyms.

The court judgement, obtained by news.com.au, also showed that the directors promised that each soon-to-be gym owner would see their customer base grow to more than 1200 members in the space of just 10 months and that they would break even straight away. Again, this did not eventuate.

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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.

But really, Mr Hagemrad had an arrangement to receive a 10 per cent discount for UFC branded equipment which he would then sell onto franchisees at a higher price.

The court heard he obtained a dumbbell set for $9,500 but sold it on at $27,250, a 286 per cent price increase.

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

Evidence also emerged that two businesses involved in the fit-out stage for UFC franchises actually had personal links to Mr Hagemrad.

Mr Hagemrad’s brother-in-law operated Intrex Projects Pty Ltd, the “approved supplier” for all the UFC franchises.

This company charged $106,000 to the Balcatta franchise during the fit-out process, in what the court called “an unexplained charge”. The Balcatta owner, Mr Girgis, claimed this cost was attributed to “consulting”, even though only a handful of phone calls occurred between this company and his builder.

During the cross-examination Mr Hagemrad was accused of receiving “kick-backs” through this business, which he denied.

A company called Strategy Squared Pty Ltd imported UFC Gym equipment, with the freight and customs costs then charged to franchisees.

Mr Hagemrad’s wife was the director of Strategy Squared, the court was told.

He also held shares in the company, but denied his business relationship with UFC Gym “enabled his wife to profit”.

“There was no evidence that the franchisees were informed of any connection between Strategy Squared and Mr Hagemrad,” Judge Thawley found.

Strategy Squared charged Mr Girgis $26,620 and $6,651 for its services.

Judge Thawley also declared that he did not find Mr Hagemrad “to be a reliable or credible witness” during the six-day trial.

This is not the first time Mr Hagemrad has been in court.

In 2018, the Federal Court found Mr Hagemrad “deliberately and dishonestly created fake sales” to sell a Subway franchise, located in Haymarket in Sydney.

During the hearings, it also emerged that one of the franchisee owners, Laziz Mirdjonov, the owner of the Castle Hill gym, had used funds from the business on personal expenditures such as domestic and international travel, restaurants, luxury shopping and two Mercedes Benz.

Mr Mirdjonov told news.com.au he used an Amex card linked to the Castle Hill gym for personal expenses but said he excluded it from the business‘s expenses and paid it back. He said he did so to get more points on his credit card to make travelling cheaper.

Originally, the judge ordered $2.3 million to be paid back in liabilities to the Castle Hill franchise but this was revised down to the current figure of $1.4 million upon learning about the extra expenses.

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

“I started off (franchising) in Jetts Fitness, and then F45, then UFC Gym offered me an opportunity, unfortunately,” he said.

Across the three franchisees — who had never interacted with each other prior to the court case — they spent $850,000 in legal costs.

“We’ve had to take debt, borrow money against property, stick to this business to keep it going, it’s been very very difficult,” Mr Girgis said.

His 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 and Castle Hill gyms have since rebranded to Rival Gyms, while the Blacktown enterprise has shut down in the wake of the court judgment, which also deemed their franchise commitments were voided.

In the weeks and months leading up to UFC Gym’s administration, two other independent franchises also shut down.

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.

The seven remaining gyms attached to the UFC head office are still operating as the administrators look for buyers.

Administrators have kicked off a sales campaign for the company last Tuesday while expressions of interest opened up on Friday.

Immediately upon taking over the company — the following day in fact — the administrators shut down its Parramatta branch, in western Sydney.

“It was an unprofitable corporate store,” the administrator, Mr Goyal, told news.com.au. “We exited that store immediately upon our appointment.”

Customers from the Parramatta gym have been left fuming, however, as their membership was automatically transferred to the nearest UFC gym, in Wetherill Park, without any consultation.

Parramatta gym members claim they were informed they would have to put in a 30-day notice period if they wished to leave the Wetherill Park branch, which will mean continuing to pay the $30 a week fee until then.

A customer, who did not want to be named, told news.com.au they felt “ripped off” and had made a complaint to NSW Fair Trading.

“All of a sudden it (the Parramatta gym) just shut. Within a day or two the whole premises were empty,” he said.

The Wetherill Park gym “is too far away” for him and yet the company offered him “no refund”, instead automatically transferring his membership there.

“They made you cancel, they left it up to you. They should be cancelling it for you.”

A UFC Gym spokesperson said customers “were given the option to transfer to the nearby, larger Wetherill Park gym where they may also cancel without penalty”.

This policy was never advertised on social media, and was not communicated to customers when they brought it up with a staff member.

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The administrator and company itself also seem to be in disagreement about the brand’s future.

Another seven gyms were meant to open later this year but the administrator said these plans have been put on hold in light of the company’s recent financial woes.

Meanwhile, a UFC spokesperson told news.com.au “The company continues to open new gyms with Woolooware set to open in coming months and others in development”.

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