Two independent service providers had come up with a franchise formula. This was a very innovative formula that would allow for putting standard products on the market in a largely automated manner with a so-called ‘push of the button’ and at a very competitive price.
The investors had already invested large amounts of money in the formula, but more investments would lead to insolvency risks for the shareholders of the franchiser. The franchiser filed for personal bankruptcy.
Hoens & Souren were engaged by one of the shareholder-directors of the bankrupt franchiser, who was being called to account by the trustee in bankruptcy for improper performance of one’s duties and being held personally liable. Our assignment was to protect his ‘house and home’, but also to safeguard the intellectual property interest.
The accusations of the trustee in bankruptcy were that the general partnership development costs had been brought into and entered as an asset of the company, that employees were engaged and additional costs incurred, all of this while the internal processes for facilitating the new franchisers in an adequate manner were not yet fully in place. A new structure with limited liability was established and extra costs followed, stated the trustee in bankruptcy, at a time when serious doubt existed as to the continued existence of the organisation. The trustee in bankruptcy deemed the activity irresponsible, rash, and wrongful.
We carried out a full analysis of the case and decided on a strategy. The defence would concentrate on the market explorations and the reports from independent experts and other third parties engaged. The purpose of this was to demonstrate that the concept was perhaps revolutionary, but certainly not rash. The other part of the defence was that further investment would indeed be rash.
The law court agreed with the defence and ruled against the trustee in bankruptcy. All there is to do now is to wait until the time is ripe for a ‘revival’ of this formula.
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