How to liquidate a franchise company?
The liquidation of a company in a franchise agreement begins the same as with putting any other company into a Creditors Voluntary Liquidation (CVL). This is usually the most appropriate way to liquidate an insolvent company.
Speak to us if you’re a director considering liquidating your company, and we’ll guide you through your available options.
What happens when a franchisee enters liquidation?
Liquidating a franchised company can be a complicated process due to the inclusion of that franchise agreement and the stakeholders involved. As the franchisee, consult your agreement to identify obligations or requirements around liquidation or termination.
A franchise agreement typically consists of two parties:
- Franchisor – the party who owns the branding
- Franchisee – the party operating the service with the franchisor’s branding
In liquidation, the franchise’s involvement can lead to further considerations outside those usually present in a standard liquidation, including, but not limited to:
- Unpaid licensing fees
Once the liquidation commences, the franchisor becomes an unsecured creditor for unpaid fees and charges relating to the use of that franchisor’s intellectual property. - Rent arrears on business premises
Issues may arise around rent arrears on your company’s premises. Franchise agreements may include a clause wherein the franchisor sub-lets the franchisee their business premises. This arrangement makes the franchisor responsible for the franchisee’s rent arrears.
How can I terminate or exit a franchise agreement?
While specifics may depend on the franchisor, as franchisee, your ability to end the agreement is limited and often includes access to assets or systems needed for the business to operate.
- Insolvent franchisee
If a franchisee becomes insolvent, the franchisor will likely terminate their franchise agreement.
- Check your franchise agreement
There may be a clause in your contract detailing what would happen in this situation, as they may want to disassociate from the insolvent company and protect their own business from any potential fallout.
What happens when a franchisor becomes insolvent
If the franchisor is the insolvent party, the company’s intellectual property is considered an asset; a valuable one if linked to multiple franchisees.
Solvent franchisees may be offered the chance to purchase the intellectual property and continue the business, though this depends on the case’s circumstances.
How our services can help insolvent franchisees and franchisors
Whether you’re a franchisee or franchisor and your company can’t afford to pay its liabilities as and when they fall due, you should seek professional advice from a licensed insolvency practitioner such as us.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch with us: The next steps for engagement
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form or online chat. If suitable, we will arrange a free consultation with one of our consultants to discuss your situation in depth. - Initial assessment
During the consultation, we will assess whether the liquidation of your company is the most appropriate route forward, or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If a CVL is the best course of action, we will confirm the necessary steps to place the company into liquidation and will issue you with the relevant documentation for you to formally engage us.
In summary
A CVL is the process used to liquidate an insolvent company. A liquidation involving a franchise agreement can add extra considerations and complicate the process. Franchisors become unsecured creditors if their franchisee enters liquidation and issues can arise around the termination of leases and rent arrangements. If the franchisor is insolvent, that branding could be considered an asset if linked to multiple franchisees. Speak to us if your company is in a franchise agreement and is experiencing financial difficulties. We can offer free, confidential, impartial advice and help you find the best way forward.
Case Studies
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
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