The bankrupt franchisor
In the current time of economic downturn, bankruptcies of companies are the order of the day. Both franchisees and franchisors can be affected by bankruptcy. This contribution examines the consequences for franchisees of the bankruptcy of their franchisor.
If a franchisor goes bankrupt, this has immediate consequences for its franchisees. After all, consumers will have the impression that not only the franchisor, but also the franchisees are bankrupt. The consumer is usually not aware of the fact that there are no own branches of the franchisor, but of franchise establishments that are operated at the expense and risk of the franchisees. Franchisees must therefore communicate to the consumer as soon as possible that the bankruptcy of the franchisor does not mean that their establishment is also bankrupt.
The bankruptcy also has consequences for the legal position of the franchisees vis-à-vis their (former) franchisor and the trustee charged with settling the bankruptcy. Contrary to popular belief, the bankruptcy of the franchisor does not automatically result in the termination of the franchise agreement. In principle, the franchise agreement also remains in effect after the bankruptcy. However, most franchise agreements do contain a termination provision which means that, in the event of bankruptcy, the franchise agreement can be terminated with immediate effect. If the franchisee wishes to make use of this, the franchise agreement must usually be terminated by registered letter. This letter should be addressed to the trustee. The trustee also has the authority to terminate the franchise agreement.
Before a franchisee proceeds to terminate the franchise agreement, he must be fully aware of the consequences of such termination. First of all, termination of the franchise agreement means the end of the franchise right, so that the franchisee is no longer allowed to continue to operate his franchise establishment under the name of the franchise formula and the associated image. Moreover, the (sub)lease agreement between the franchisor and franchisee is often linked to the duration of the franchise agreement.
If the link has been made correctly, the end of the franchise agreement also results in the end of the (sub)lease agreement and the franchisee cannot continue to operate his business in the leased property. In consultation with the curator and with the consent of the main lessor, the leased property may be used continuously. Finally, if such a clause is included in the franchise agreement, the non-competition clause that applies after the franchise agreement has expired will also remain in force. As a result, after termination of the franchise agreement in connection with the bankruptcy, the franchisee is still bound by the non-competition clause and may not operate a competing company in its location or area of work. In certain cases, however, it may be contrary to reasonableness and fairness if the trustee invokes such a non-competition clause.
In summary, if the franchisor is declared bankrupt, the franchisees would be wise to assess (or have assessed) on the basis of the franchise agreement and the other agreements concluded, how the franchise formula can be discontinued and what the ( legal) consequences thereof.
Ludwig & Van Dam franchise attorneys, franchise legal advice
![](https://ludwigvandam.megaconcept.nl/wp-content/uploads/2020/12/232court-min-400x222.jpg)
Other messages
Severance schemes in the event of (premature) termination of the
Retirement schemes Franchise agreements and comparable cooperation agreements regularly include a regulation to the effect that the rights under that agreement
Delivery obligation?
Many buyers, including franchisees, are of the opinion that there is a delivery obligation in the Netherlands, meaning that suppliers are obliged to deliver goods if a potential
Internet in franchise relationships
If, in the context of a franchise relationship, internet and e-commerce are discussed in order to sell the goods/services of the franchise organization digitally
Use of telephone and fax numbers after the
Most franchise agreements stipulate that after termination of the franchise agreement, the former franchisee must comply with a non-competition clause.
Recent developments regarding resale price maintenance
On February 13, 2004, the administrative judge of the District Court of Rotterdam rendered a judgment between Secon Group BV
Reinvestment / restyling within an existing franchise concept.
In practice, we have recently seen more and more developments that point to a conversion/restyling of the franchise organization