Collection fraud results in franchisor 4 years in prison and a fine of € 7 million – dated 25 February 2020 – mr. JAJ Devilee

Although it is quite exceptional, in franchising country you come across every now and then
proverbial cowboys against. In a very exceptional criminal case
issue, the Arnhem-Leeuwarden Court of Appeal (ECLI:NL:GHARL:2019:11154)
recently ruled that one of the directors of a (former)
franchisor of a catering formula should serve a prison sentence
sentence of four years and nine months and a fine
pay more than seven million euros.

Background

The director of the franchisor is (partly) suspected that he
operated for various franchisees. For the purposes of collecting the
franchise fees, the franchisor had entered into collection contracts with
the couch. By means of these collection contracts, amounts (fees)
are collected. However, the bills turned out not to belong to
franchisees. An amount to be collected by the franchisor then became
for example by the bank, in anticipation of the success of the collection or on
advance basis, deposited into one of the accounts. Meanwhile, these
amounts passed on or withdrawn by the franchisor. In a devious way
an attempt has been made to disguise this by the director of the franchisor.
This created an illegal source of income.

The bank filed a report in September 2011 in connection with these actions
against the director of the franchisor for suspected fraud
act when using these direct debit contracts with which the bank provides
more than an amount of approximately € 11 million would have been damaged.

Judicial judgment

In the first instance, the court had imposed an unconditional prison sentence
of four years. The director subsequently appealed
the verdict. On appeal, the Court of Appeal also finds the director
guilty and imposes even a higher sentence than the court. It
The court sentenced the suspect to four years and nine months
unconditional imprisonment; a disqualification from the right of
statutory director for nine years and nine months and an obligation
for compensation of damage of € 7,019,544.79.

Conclusion

Although the above concerns an almost unique situation, there are
franchisors who don’t always color within the lines. In the present
issue showed that the franchisees who were affiliated with the formula
were not involved in the aforementioned collection fraud. However, it may be obvious
be that such behavior of the franchisor can cause enormous reputational damage
to affiliated franchisees, but also to the franchise industry
in general, with all its consequences. Do you suspect fraud in the
organization of your franchisor and do you have advice in such a case
need, please give us a call.

mr. JAJ Devilee

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

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