Restructuring & insolvency lawyer — Franchising & distribution networks sector

Sector scope

Franchisors and network heads, master franchisees, multi-site franchisees, trademark licensees, dealers, affiliated agents, cooperative groups and agent networks.

Sector context

A franchise network brings together legally independent businesses around a brand, know-how and a purchasing central. A franchisee's difficulties are dealt with at its own level but affect the network through cross guarantees, exclusive supply and brand image; conversely, a franchisor's difficulties reach every franchisee, whose operations depend on the brand and the promised assistance. The analysis must therefore run in parallel on the franchise agreement, the director's personal guarantees and the fate of the trademark.

Key legal issues

• Ongoing franchise agreement: the contract survives the opening of proceedings, termination clauses based on that opening are ineffective, and the administrator holds the option (Art. L. 622-13 Commercial Code).
• Pre-contractual disclosure: the disclosure document must be delivered twenty days before signature (Art. L. 330-3 Commercial Code); deficiencies may found a separate claim.
• Directors' guarantees: guarantees given to the franchisor, landlord and banks, the stay benefiting individual guarantors in safeguard (Art. L. 622-28 Commercial Code) and the different regime in rehabilitation proceedings.
• Exclusive supply and royalties: royalty and purchase debts owed to the central, set-off, and continued deliveries during the observation period.
• Sale of the business or of the shares: franchisor approval clauses, rights of first refusal or pre-emption, and their interaction with a court-approved sale plan (Art. L. 642-7).
• Brand and know-how of a distressed franchisor: treatment of the trademark in a sale plan, continuity of promised assistance and services, and the consequences for franchisees.
• Post-term non-compete and non-affiliation clauses: validity requirements and their effect on the value of the business if the network is left.

How a matter is handled

1. Diagnosis: review of available cash, due and payable liabilities, tax and social security instalments and existing security, in order to establish whether cessation of payments is characterised (Art. L. 631-1 Commercial Code).
2. Choice of procedure: arbitration between confidential out-of-court tools (ad hoc mandate, conciliation) and formal proceedings, in light of the sector's own timetable.
3. Negotiation: discussions with banks, strategic suppliers, the AGS wage guarantee scheme, the tax authorities and URSSAF, and where relevant before the CCSF.
4. Implementation: preparation of the filing, representation before the commercial courts, monitoring of the observation period, and preparation of the plan or of the sale.

French procedures at a glance

A declaration of cessation of payments must be filed within 45 days of that state arising, unless a conciliation request is filed within the same period (Art. L. 631-4 of the French Commercial Code).

Frequently asked questions

Can a franchisor terminate because the franchisee is in rehabilitation proceedings?

Not on that ground alone. Clauses providing for termination upon the opening of proceedings are deemed unwritten and the ongoing contract continues; only the administrator may require performance or waive it (Art. L. 622-13 Commercial Code).

What happens to the franchisee director's personal guarantees?

In safeguard, individuals who are co-obligors or who granted personal security may rely on the plan and benefit from the stay of proceedings (Arts. L. 622-28 and L. 626-11 Commercial Code). In rehabilitation proceedings the protection is narrower and must be assessed case by case.

Can a franchisee sell its business during proceedings?

A sale may take place out of court with the consent of the officeholders, or through a court-approved sale plan. Franchisor approval and pre-emption clauses generally keep their effect in the first case; in the second, the court rules on which contracts are transferred (Art. L. 642-7 Commercial Code).

What happens to franchisees if the franchisor is distressed?

Franchise agreements are ongoing contracts within the franchisor's proceedings. Their continuation requires the franchisor to perform, notably assistance and provision of the brand. Under a sale plan the trademark and designated contracts may pass to a purchaser, changing the franchisees' counterparty without in itself altering the contracts.

Do post-term non-compete clauses remain enforceable?

Validity is assessed under general contract law and Regulation (EU) 2022/720: limited in time, in territory, to competing goods and services and to the premises operated. Such clauses generally remain enforceable, subject to the court's assessment and to the effect of the proceedings on performance.

Can a network be restructured confidentially?

Yes. Ad hoc mandate and conciliation (Arts. L. 611-3 and L. 611-4 et seq. Commercial Code) are confidential and allow royalties to be rescheduled, leases renegotiated and a new investor introduced before cessation of payments.

Contact

Phone: +33 1 45 03 20 20
Email: accueil@macmahon-avocats.fr
Address: 33 avenue Mac-Mahon, 75017 Paris, France

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