Can non-compete and confidentiality protections in a rejected franchise agreement be discharged in bankruptcy?

The answer is, “No,” according to In re Empower Central Michigan, Inc.[Fn. 1]

Facts

Debtor is an automotive repair shop.

Debtor operates under a Franchise Agreement with Autolab Franchising, LLC. The Franchise Agreement has a non-compete provision, and there is a separate-but-related confidentiality agreement.

While franchising has typically been a more robust business model than others, it remains susceptible to broader economic and sectoral pressures, as The Body Shop’s recent entry into administration demonstrates.

In the unfortunate event that a franchisor or franchisee becomes insolvent, disruption is inevitable. However, insolvency doesn’t necessarily spell a terminal outcome. In this article we consider some of the key considerations for both franchisors and franchisees.

Handling franchisee insolvency: the franchisor’s approach

Strelia a assisté un franchiseur dans le cadre d’une procédure introduite contre une caution personnelle – gérant de société – qui souhaitait échapper à ses obligations de caution en invoquant sa faillite personnelle. Selon la Cour de cassation, un dirigeant d’entreprise ne peut cependant pas automatiquement être qualifié d’entreprise et faire aussi facilement aveu de faillite.

Strelia assisted a franchisor in an action brought against a personal surety – a company director – who attempted to escape his obligations by filing for his personal bankruptcy. However, according to the Court of Cassation, a company director cannot automatically be considered as an enterprise and therefore is not capable of filing for bankruptcy.

Strelia stond een franchisegever bij in een procedure tegen een persoonlijke borgsteller – een bedrijfsleider – die zich aan zijn verplichtingen als borg wilde onttrekken door zichzelf failliet te laten verklaren. Echter, volgens het Hof van Cassatie kan een bedrijfsleider niet automatisch als onderneming gekwalificeerd worden en dus niet zomaar zijn faillissement aanvragen.

Introduction

Introduction

No two commercial mediations are the same.

However, there are three elements common to most cases:

1. Legal – in the absence of a consensual settlement, the law will decide the issue.

2. Commercial – all by definition have a commercial component – usually money.

3. Emotional – to a greater or less extent, where people are involved, emotions will play a part. The dispute may be a business dispute, but businesses are run by people, each of whom has his/her own drivers.

IP licensing and insolvency reform: ipso facto clauses

Licensors of intellectual property rights may soon be unable to terminate licenses where the licensee has gone into an insolvency process.

What are ipso facto clauses and why do they matter?

Changes to the Listing Rules and further consultation on enhancing the effectiveness of the regime