Duty of care in the event of franchisee business difficulties
Court in Zwolle
The issue at hand has recently made headlines as news of the issue has spread ‘on the street’. A franchisee of the ‘Kentucky Fried Chicken’ fast-food chain leaves unpaid his debts to the franchisor in respect of goods and services supplied. The parties discuss the repayment of these debts, but ultimately fail to reach an agreement.
For this reason, the franchisor decides to impose a prejudgment attachment against the parent company of the franchisee. After all, this parent company was jointly and severally liable for the franchisee’s debts, pursuant to contractual provisions. Furthermore, the franchisor files a petition for bankruptcy with regard to the franchisee itself.
The franchisee is of the opinion that this constitutes an abuse of law, because the imposition of a prejudgment attachment should only be seen as the willful ‘placing’ of the franchisee by the franchisor. The bankruptcy petitions have also been filed for this purpose. Furthermore, the attachment is unnecessary, because it will only take longer to pay the outstanding debts. The franchisee therefore asks for the attachment to be lifted, because the franchisor is not behaving as a prudent franchisor.
However, the court is of the opinion that there is no abuse of law, because the franchisor has deliberately chosen not to impose an attachment against the franchisee itself, but against the parent company. Because it has not become apparent that an attachment against the parent company also affects the franchisee, there is – according to the court – no question of a situation in which the franchisor has breached its duty of care. The attachment is therefore maintained.
The motives of the franchisor can only be guessed at, but it cannot be ruled out that the attachment was levied – partly – to give the bankruptcy petition a better chance of success. That in itself is an easily arguable strategy, but the judgment of the court shows that such ‘one-two’ (seizure + filing for bankruptcy) can in certain cases indeed constitute a violation of the duty of care of the franchisor. Consider, for example, a situation in which the attachment and the immediately subsequent bankruptcy petition concern the franchisee itself. In that case, there could be a violation of the duty of care and an abuse of law with all the consequences that entails.
Incidentally, it has recently become known that the franchisor has reached an agreement with the trustees of the (now: former) franchisee, so that the restaurants could soon be opened to the public again. The franchisor was pleased with this development and the trustees were also satisfied with the result achieved. What the (former) franchisee thinks of it is not apparent from the relevant publication, but one can easily guess.
Mr JH Kolenbrander – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice Would you like to respond? Mail to email@example.com
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