Franchisor bankrupt? Get legal help right away

• Ask for clarity
• Honouring the franchise agreement
• Failing to honour franchise agreement
• Failing to honour but continuing anyway
• Relaunch or termination

In a bankruptcy, the franchisor loses the control of its formula. It ends up with the curator. They will decide whether the formula will be terminated, or sold and continued. The curator also decides what support franchisees will receive during the liquidation of the bankruptcy.Always seek legal help if your franchisor goes bankrupt. With help from a specialist, you can best determine what to do. Read below what options you have during bankruptcy.

Ask for clarity

In case of bankruptcy, the agreement with the franchisor remains in force. But you cannot demand that the franchisor honours that contract without the intervention of a court. But the opposite is possible, when you are forced to honour the contract. This creates an unequal situation.

To avoid this, it is very important that you ask the franchisor if they are willing to honour the franchise agreement. You must do so in writing within 2 weeks of the bankruptcy declaration.

Honouring the franchise agreement

A curator usually wants to honour the franchise agreement if there is a possibility of a relaunch. There must also be sufficient value in the estate of the bankrupt business for a bank guarantee to be issued. But beware: honouring the franchise agreement does not guarantee a relaunch.

If the curator wants to honour the contract, they must issue a bank guarantee. The bank guarantee is an amount of money that the curator pays as a guarantee to the bank. The bank pays out that amount if the curator fails to fulfil its obligations.

Failing to honour franchise agreement

If the curator refuses to honour the franchise agreement, you have 2 options. First, you can dissolve the agreement. This means the obligations for both parties end. This cancels, for example, a non-compete clause or lease agreement. This can be to your advantage.

In addition, you can choose not to dissolve the agreement. Then you can continue with limited help or without help from the franchisor. The possibility then remains that your business will be part of a relaunch.

If you have not sought clarity from the curator in time, most franchise contracts allow you to terminate the agreement. Termination does not go as far legally as dissolving the agreement. You are no longer in business together, but this does not, for example, cancel the non-compete clause. That can be a disadvantage.

Failing to honour but continuing anyway

You can still continue, even if the curator does not want to honour the agreement. In that case, you will usually receive little or no support with your business operations. For example, help with administration, training, supplies, and marketing. These are exactly the things that a franchise is all about and that you also lose if you terminate or dissolve the contract.

Trade name

It depends on agreements with the curator whether you can still use the trade name. If not, all appearances of the name must disappear. From your shop front to your stationery. You will then have to choose a new trade name and register this change with the Chamber of Commerce KVK.

Deliveries

If the supply of your stock goes exclusively through your franchisor, supplies may come to a halt. The franchisor often can no longer pay its suppliers. So you have to look for alternative sources. Consult with the curator what options you have, if the contract includes an obligation to purchase through the franchisor.

Non-compete clause

Most franchise agreements contain a non-compete clause. Within a certain area and within a certain period, you are not allowed to start or continue the same activities. In principle, this remains valid. However, a judge can terminate or moderate it.

Renting premises

Do you rent the premises from your franchisor? If so, the curator can terminate the lease. You will then be without a business location. You can submit a cash claim for this to the liquidator. The question is whether the bankrupt estate has enough money to pay this.

Relaunch or termination

If the franchise formula is relaunched, you usually have to conclude a new or additional franchise agreement. If the formula ends because of the bankruptcy, it usually means that you are no longer allowed to use the brand name. You also have to surrender goods and inventory belonging to the franchise formula to the curator, among other things. The same applies if you have terminated or dissolved the agreement.