California Fitness’s closure has left many consumers who have purchased prepaid packages without any remedies.
On 20 July, California Fitness, which was once fronted by action movie star Jackie Chan, announced that it would immediately shut down all its outlets in Singapore. This follows the gym operator’s announcement that the company would close all 12 outlets in Hong Kong on 15 July.
The sudden closure of Hong Kong’s second-largest gym operator has left an estimated 64,000 members and 700 employees seemingly without any recourse. Both the Hong Kong and the Singapore chains were owned by a company called JV Fitness, and the liquidation in Singapore is currently being managed by recovery firm Ferrier Hodgson.
The liquidation has captured local media attention because many end-consumers had signed up for prepaid packages with the fitness chain, and these will unlikely be honoured or reimbursed. Reports disclose that the Consumers Association of Singapore (CASE) received 331 complaints in a span of four days about the fitness chain’s closure.
According to CASE, consumers’ hands are mostly tied, and it has urged consumers who bought prepaid packages with their credit cards to contact their banks to request a refund because of undelivered services. However, CASE added that if a bank had already paid the full sum to California Fitness and has begun collecting monthly installments from the consumer, the consumer is still liable to pay the monthly installments.
The sheer number of consumers affected by the closure brings into focus the following consumer protection questions facing the fitness industry and other industries whose business models rely heavily on prepaid packages for future services:
- Can a regulator or consumers (who were encouraged to sign up for prepaid packages in the weeks before the company’s imminent insolvency) mount a claim against the directors personally for fraudulent trading? The directors would arguably have known that the company would not be able to fulfill its obligations under the prepaid packages and should not have been marketing prepaid packages to the public.
- Should a regulator consider implementing an industrywide insurance scheme that companies can purchase to insure against situations where a company cannot fulfill its future obligations under prepaid packages because of insolvency-related events?
- Should a regulator also consider imposing a cap on the duration of prepaid packages that firms can offer?
Regulators and industry players should carefully consider these issues, especially because the Singapore Parliament is considering wide-ranging amendments to the Consumer Protection (Fair Trading) Act to strengthen the current level of protection for consumers.