The three parent companies behind UFC Gym Australia have entered voluntary administration after being told to pay more than AU$5m in compensation to franchisee owners who took them to court.

Ultimate Franchising Group, UFC Gym Prospect and Ultimate Franchising Group Properties held the master franchise agreement for UFC Gym Australia.

Following a complex court case, a Federal Court judge ruled that the companies and their directors – Mazen Hagemrad and Samer Husseini – had engaged in "misleading and deceptive conduct” during the process of selling UFC Gym Australia franchises to others.

UFC Gym Australia was taken to court by three franchisees, who claimed they were induced to enter into the franchise agreements and guarantees by conduct which was misleading or deceptive.

The misrepresentations, they argued, included claims made over the profitability of the businesses.

Court documents show that each franchisee had paid up to approximately AU$1.4 million in start up costs and other expenses, but had made operating losses of between $391,000 and $962,000.

The three franchised clubs involved in the court case were UFC Gym Balcatta, UFC Gym Blacktown and UFC Gym Castle Hill.

In its judgement, the Federal Court said the agreements with the three franchisees should be voided and that AU$5.2 million should be paid to them.

In his ruling, Federal Court judge, Tom Thawley, said: "I am satisfied, after considering the representations made in the context of the whole course of events, that Mr Hagemrad and Mr Husseini, and through them UFC Gym Australia, engaged in misleading conduct in contravention of ACL Section 18(1)."

Following the court's decision, a spokesperson for UFC Gym Australia told local media that the company had appointed administrators because it was the "best option available" to "stabilise its financial situation".

They added: "The company retains full confidence in the future of the brand’s continued survival in Australia".

US-based UFC Gym was first founded in 2009 as an expansion of the popular mixed martial arts brand.

It now operates in about 40 countries world-wide.

To read the Federal Court's decision in full, click here.