In Ireland, the following two insolvency processes are to be considered:
- Liquidation (and/or Receivership) where the directors of the insolvent company lose control of the company and ultimately the company will be dissolved.
- Examinership where the company is protected from creditors for 100 days while an examiner restructures the debts of the company, but the directors maintain executive control of the company.
1 Can I terminate a franchisee for entering into insolvency proceedings (in the event that the agreement does not contain an ipso facto clause or, if it did, such clause would not be valid), or pre-emptively terminate them if I know an insolvency practitioner is about to be appointed?
- Yes, a franchisor can terminate an agreement if the franchisee goes into liquidation.
- No, a franchisor cannot terminate an agreement if the franchisee goes into examinership.
2 Am I obliged to continue to supply a franchisee that is in insolvency proceedings? How does this process affect my contractual rights?
- No, a franchisor is not obliged to continue to supply a franchisee if it goes into liquidation.
- A franchisor is also not obliged to continue to supply a franchisee if it goes into examinership, but is likely to want to as the examiner will guarantee payment and the company may survive.
3 Can I retrieve products for which the franchisee has not yet paid? If so, how and when?
- If a franchisor has a retention of title (ROT) clause, you can retrieve products supplied to a franchisee. This can be done as soon as it is agreed with the liquidator.
- A franchisor cannot retrieve product while the company is in examinership.
4 Does a post contractual non-compete clause remain in force after the franchise agreement has ended by or because of insolvency proceedings?
- Not in a liquidation.
- A non compete clause will remain in place in an examinership.
5 Is the franchisee entitled to goodwill in case of termination of the agreement and if so, does this still apply in an insolvency situation?
- Not in a liquidation.
- Yes in an examinership.
6 A franchisee is in financial difficulties and is going to sell its business (as an asset sale) to a new franchisee. Do I have any legal duty to the purchasing franchisee?
- Yes, the franchisee has all the usual obligations to a purchasing franchisee if the sale is taking place before an insolvency process and of course must be satisfied that the seller is solvent or a liquidator appointed later may challenge the sale.
- If the company has gone into liquidation, the liquidator can sell the franchise business without having to provided warranties or indemnities (caveat emptor applies, as the liquidator will not be expected to know the history of the franchise). It is self-evident that the company is insolvent.
- In an examinership, the sale of the business is effectively to an investor and the company will survive the process so there is a higher obligation on the examiner and the directors of the company to the purchasing franchisee (investor). Again, it will be self-evident that the company is insolvent.
7 A third party wishes to buy the franchisee's business from the insolvency practitioner - to what extent do my contractual rights to approve the sale, if any, clash with the insolvency practitioner's duty to realise value for franchisee's creditors?
- A liquidator will be bound by the terms of the franchise agreement, so your rights to approve remain in place.
- An examiner is also bound by the terms of the franchise agreement, so your rights to approve also remain.
8 An insolvent franchisee operates at a key location – how can I ensure there is business continuity and a transfer of the lease/business, either back to the franchisor, or to a third party of its choosing?
- As above, a liquidator will be bound by the agreement and be obliged to comply with your directions.
- An examiner is also bound by the terms of the agreement and should comply with your directions.