Legal split at franchise and the bankruptcy pauliana

The Supreme Court recently made interesting rulings (ECLI:NL:HR:2013:2122 and ECLI:NL:HR:2013:2133 ) in a matter of legal unbundling, which is also important for the franchise practice. Questions are increasingly being raised about aspects of legal unbundling. For example, in the supermarket sector it is known that franchisees of C1000 are confronted with, for example, competitor Albert Heijn or Coop as a lessor after a legal split at the franchisor.

In franchising relationships, it is common for a franchisor to own a number of valuable locations that are leased to franchisees. In times of economic hardship, these locations may be threatened by the bankruptcy of the franchisor. The franchisor can protect valuable locations by means of a legal separation, whereby the locations are transferred to a newly established entity. Creditors, or potential future creditors, could be limited in their recovery options as a result.

But what happens if the franchisor also goes bankrupt and the trustee argues that there is a case of creditor damage? The trustee could file the bankruptcy pauliana. This is a powerful weapon, reserved for the curator. The bankruptcy pauliana means that the trustee can nullify any legal act that the bankrupt (before his bankruptcy) performed without obligation and of which he knew, or should have known, that this would result in the detriment of the creditors. With the destruction, the division is then undone and the valuable business locations can be completely sold out for the benefit of the creditors in the bankruptcy.

The Supreme Court recently ruled on a case in which a trustee challenged a legal division based on the bankruptcy pauliana. After all, the trustee stated that with the non-mandatory splitting off of the real estate, the creditors in the bankruptcy would not be able to enforce the valuable real estate, and that this was foreseeable. The requirements for the application of the bankruptcy pauliana seem to have been met.

The Supreme Court ruled against the trustee. This is because the legal regulation of the legal demerger has strict rules that limit the protection of creditors. This also applies to creditors in a bankruptcy. For example, the law sets a hard term of six months after the publication of the legal demerger, within which a legal claim must be filed to annul the legal demerger. Now that a period of more than six months had elapsed between the publication of the legal division and the bankruptcy, the trustee was left behind by invoking the bankruptcy pauliana.

Even if the trustee had filed a legal claim for annulment of the legal demerger within the prescribed period, there are only limited grounds on the basis of which the demerger can indeed be annulled. For example, there will be no destruction if the consequences of the demerger that have already occurred can hardly be undone. These grounds for annulment are more limited than for the grounds for annulment in the bankruptcy pauliana. The Supreme Court has now indicated that these annulment options apply exclusively in the event of a division. An appeal to other grounds for setting aside, such as those that apply to the bankruptcy pauliana, therefore also do not apply. Incidentally, the Supreme Court did suggest that the trustee could claim damages by invoking the general doctrine of wrongful act.

The action of franchisees against a legal split with franchisors can be extremely difficult. The period within which this must be done is short and the grounds on which it is possible are also limited. Franchisees can include in their franchise contract and/or rental contract in advance that the transfer of certain (rental) rights of the franchisee by the franchisor or lessor to another legal entity is not permitted. It is also important to stipulate a sanction, such as a fine. In this way, the “dangers” for a franchisee of a possible legal split could be limited. Unfortunately, we don’t see that enough in practice.

Mr J. Sterk and Mr AW Dolphijn  – Franchise attorney

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Mail to vandam@ludwigvandam.nl