Entrepreneur and debt restructuring

In practice, franchisees, and sometimes also franchisors, have run into financial problems as a result of or because of the crisis. In a number of cases, the entrepreneur is advised to apply for debt restructuring. This contribution contains a brief explanation of the Natural Persons Remediation Act.

Any natural person with his own company – regardless of the nature and size of the company, the assets and the debts – can apply to the court for statutory debt restructuring, so in most cases also a franchisee.

The Natural Persons Restructuring Act (WSNP) offers the debtor the opportunity to put an end to long-term, or even lifelong, debts. A condition for admission to the WSNP is that the debtor has completed an amicable process. An amicable process is understood to mean a voluntary debt restructuring process. Only if the amicable attempt has failed can the debtor invoke statutory debt restructuring.

Debt restructuring is often a last resort to avoid bankruptcy. In many cases, debt restructuring involves a company, read in this case a franchise establishment, that is no longer viable and where the entrepreneur can be held personally liable in the event of bankruptcy. It is therefore the entrepreneur’s best interest not to go bankrupt. This can be a sole proprietorship, but also a general partnership, a legal form that is frequently used by franchisees.

The legal debt restructuring offers the entrepreneur the opportunity to get a “clean slate” in three years. This is not an easy process and there is also a good chance that the company will have to be terminated. The franchisee will have to make every effort to raise as much money as possible for the creditors. This will mean that everything that has any value must be converted into money. The proceeds can be used to make an offer to the joint creditors to pay part of the debt against final discharge. The franchisee can also be expected to become an employee in order to generate income to pay creditors.

Debts arising from fraud or a crime will constitute a ground for rejection for admission to the WSNP.

If the franchisee has been admitted to statutory debt restructuring, the court will appoint an administrator. During the statutory debt restructuring, a number of rules must be adhered to. If this is not complied with, the court can proceed to interim termination. The debt rescheduling will also end if an interim agreement is offered to the creditors or if all debts have been paid. The arrangement usually lasts three years, resulting in a clean slate; the remainder of the debts need no longer be paid.

The franchisee in financial difficulties must make the choice for himself between filing for his own bankruptcy, liquidation of the company in the WSNP or continuation of the company while retaining business assets in a moratorium. We can discuss the advantages and disadvantages of the above choices with you, so that you can make an informed choice.

Ludwig & Van Dam franchise attorneys, franchise legal advice

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