Franchisees who litigate on behalf of a dissolved and/or bankrupt general partnership –

If the franchisee is a general partnership and the general partnership is dissolved, can litigation still take place? And what if one of the partners is bankrupt?

On 15 June 2016, the District Court of Zeeland-West-Brabant clarified in two cases (ECLI:NL:RBZWB:2016:3732 and ECLI:NL:RBZWB:2016:3723) against the same franchisor, when on behalf of a dissolved vof ( general partnership) can be litigated.

The situations in both lawsuits are similar. Two people had entered into a franchise agreement together in the form of a general partnership as a franchisee. After the general partnership has been dissolved, the two partners jointly start proceedings against the franchisor.  In one case (ECLI:NL:RBZWB:2016:3732) it was also discussed that the general partnership had gone bankrupt and the partners had been granted the statutory debt rescheduling scheme (WSNP).

A partnership has no legal personality. It is a legal relationship entered into by agreement for the purpose of conducting a business under a common name in a long-term partnership. Despite the lack of legal personality, a general partnership is treated in legal transactions as an independent legal subject with separate assets that can independently participate in legal transactions.

With the dissolution of a general partnership, a so-called property law community remains. This community needs to be settled. It is absolutely possible to act in the capacity of partners in a community of a dissolved general partnership, and therefore not in the capacity of partner. Pursuant to Article 3:171 of the Dutch Civil Code, each partner is in principle authorized to institute legal proceedings in order to obtain a court decision for the benefit of the – in this case dissolved, but still existing – community. In short, the mere circumstance that a general partnership has been dissolved does not mean that no successful procedure can be started.

The foregoing also explains that a general partnership, although it has no legal personality, can be declared bankrupt as such. The bankruptcy of a general partnership does not imply bankruptcy of the partners. See also HR 6 February 2015, ECLI:NL:HR:2015:251.

Pursuant to Section 25 Fw in conjunction with Section 68 Fw, only the trustee, after authorization from the supervisory judge, is authorized to institute legal proceedings relating to rights of the estate of the dissolved general partnership. Litigation on behalf of a bankrupt general partnership is therefore, in principle, reserved for the trustee. The partners cannot then start proceedings.

Although a partner in a dissolved community of a partnership would be authorized to litigate if the partnership were not bankrupt, a partner cannot do so if the WSNP has been declared applicable to this partner. Also with regard to this, pursuant to Section 313 Fw in conjunction with Section 25 Fw, only their administrator is entitled to institute legal proceedings, after permission from the supervisory judge.

From the foregoing it appears that if a franchisee is a general partnership and the general partnership has been dissolved, the partners can, in principle, litigate as joint partners before the community. If the partnership is bankrupt, or if the relevant partner is bankrupt or has been admitted to the WSNP, this is in principle not possible.

mr. AW Dolphijn – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

Do you want to respond? Go to dolphijn@ludwigvandam.nl