In recent years, the number of bankruptcies has risen considerably as a result of the poor economic situation. Franchisors or franchisees have also not been shielded from the consequences of this financial decline. The situation in which a franchisor has been declared bankrupt and what the consequences are for the legal position of the franchisee will be discussed in more detail below.
As a result of the bankruptcy of the franchisor, the franchise agreement concluded between the franchisor and the franchisee will in principle continue to exist and the parties must fulfill their obligations arising from this agreement. However, the franchise agreement often contains a termination clause for the situation that one of the parties is declared bankrupt. This often stipulates that the franchisee can terminate the franchise agreement with immediate effect if the franchisor has been declared bankrupt. The receiver of the bankrupt franchisor can also terminate the franchise agreement.
If the trustee terminates the franchise agreement, this may also have consequences for the (sub)lease agreement concluded between the franchisor and the franchisee. After all, the franchise agreement is often closely linked to a (sub)lease agreement, whereby the franchisor as lessor and the franchisee as lessee have entered into the agreement. If the link between the franchise agreement and the (sub)lease agreement has been established correctly, the (sub)lease agreement with the franchisee will also be terminated by terminating the franchise agreement.
The franchisee will then have to vacate the rented property and deliver it broom clean. However, in consultation with the receiver and with the consent of the main lessor, it may be possible to decide that the franchisee can remain in the leased property and continue to operate the franchise establishment.
It appears from the foregoing that it is advisable, in the event of the impending bankruptcy of the franchisor, to seek advice on the possibility of terminating the franchise relationship or to discuss the possibility of possibly continuing to operate the franchise establishment. There are various options for this, depending on the circumstances, if you act in time.
Ludwig & Van Dam franchise attorneys, franchise legal advice