A discharge loan is a proven means of franchisors to
\n long-term franchisees. A problem may arise
\n about how the franchise company should be valued as a
\n participant exits. The Amsterdam Court of Appeal (Entrepreneurship Chamber)
\n ruled on 16 June 2020, ECLI:NL:GHAMS:2020:2001, on such
\n matter. <\/p>\n
\n Two parties were shareholders in a franchise company. One of the
\n shareholders was forced to sell and transfer the shares to
\n the other. The Amsterdam Court of Appeal (Ondernemingskamer) ruled that the
\n sale price of the shares of the franchise company had to be determined
\n be performed by an expert.
\n \n<\/p>\n
\n It is established that the franchise company has taken out a discharge loan
\n with the franchisor. In this case, that means that the
\n franchise company had received an amount of \u20ac 3,750k, which amount in
\n 20 years is gradually waived, under the condition that
\n the franchise agreement continues. In addition to this, a
\n stipulation that the franchise company pays the franchisor a fee of
\n \u20ac 500k is due if in the period of said 20 years no
\n use is made of the interim extension options of the
\n franchise agreement. In this way, the franchisor knows the
\n franchise company. At the time of sale of the
\n shares, the discharge loan is still approx. \u20ac 2.7 million. big.
\n \n<\/p>\n
\n The expert appointed by the Court of Appeal estimates the purchase price at the
\n on the basis of the value of the expected future free cash flows of
\n the franchise company. When valuing the franchise business
\n the discharge loan is valued at zero by the expert. because of this
\n the value of the company increases, as does the buyout price. The
\n seller states that the discharge loan is not at zero value, but at
\n nominal value should have been deducted from the enterprise value
\n brought. This would significantly increase the selling price.
\n \n<\/p>\n
\n The Court of Appeal considers that the valuation, based on the continuation of
\n current operation, is based on the assumption that the
\n franchise agreement with the franchisor in its entirety
\n franchise business is fulfilled. Defensible is that that \u2013 long-lasting
\n \u2013 commitment to the franchisor has any depressing effect on the
\n value of the company, because the franchise company with it in any
\n degree is limited in its entrepreneurial freedom. However, the
\n valuation basis is based on the forecast of the future free
\n cash flows and the premise that the franchise agreement would be fulfilled
\n become. This justifies that no value is assigned to the
\n possibility that the franchise company will not change the existing franchise agreement
\n will not continue.
\n \n<\/p>\n
\n It is very important to have good participations in franchise companies
\n make agreements about the possible termination of the cooperation.
\n An arrangement about valuation and price should certainly not be missing
\n of everyone’s participation.
\n \n<\/p>\n<\/p>\n
<\/p>\n
mr. AW Dolphijn \u2013 franchise lawyer\n<\/p>\n