NSW Franchise - Legal Obligation to Follow Contract When Company is Gone?

[Vicki_]

Hi,

I have a question about our franchise agreement. We have a 5 year contract that’s coming to an end. In 2017, the franchise we signed up with, was deregistered, but one of the two people involved, opened up another company under a new name and continued like nothing happened. No mention to us what was going on, also, the contract states that the franchise cannot operate under any other names. Do I have any legal obligation to honour any clauses etc in my contract as the company I signed up with, is gone?

I know this might be difficult to answer but thanks in advance either way!

 

[Olena Brodovska]

Hi,

I have a question about our franchise agreement. We have a 5 year contract that’s coming to an end. In 2017, the franchise we signed up with, was deregistered, but one of the two people involved, opened up another company under a new name and continued like nothing happened. No mention to us what was going on, also, the contract states that the franchise cannot operate under any other names. Do I have any legal obligation to honour any clauses etc in my contract as the company I signed up with, is gone?

I know this might be difficult to answer but thanks in advance either way!

Hi,

Does your contract say anything about grounds for termination? I would recommend you to have a look at the relevant clauses. Also, have you checked ASIC registers to make sure that that is what indeed happened with those companies?

Kind regards,

 

[Vicki_]

Hi,

Does your contract say anything about grounds for termination? I would recommend you to have a look at the relevant clauses. Also, have you checked ASIC registers to make sure that that is what indeed happened with those companies?

Kind regards,
Olena

It has termination clauses for the franchisor, there’s a clause that if we do not re-sign, we have to sell them our business. How can I sell a company my business if it doesn’t exist anymore.

I have spoken to asic, they are the ones that confirmed all the information and also recommended that I tell the taxation department as they want to know about people who are opening and closing businesses, to avoid paying debts etc.


Kind regards,

 

[Vicki_]

It has termination clauses for the franchisor, there’s a clause that if we do not re-sign, we have to sell them our business. How can I sell a company my business if it doesn’t exist anymore.

I have spoken to asic, they are the ones that confirmed all the information and also recommended that I tell the taxation department as they want to know about people who are opening and closing businesses, to avoid paying debts etc.


Kind regards,

Vicki.

Also, the man who signed us up and now has the new company, was only ever a witness on our contract.

 

[Olena Brodovska]

It has termination clauses for the franchisor, there’s a clause that if we do not re-sign, we have to sell them our business. How can I sell a company my business if it doesn’t exist anymore.

I have spoken to asic, they are the ones that confirmed all the information and also recommended that I tell the taxation department as they want to know about people who are opening and closing businesses, to avoid paying debts etc.


Kind regards,

Vicki.

Hi Vicki,

Once a company is deregistered, it ceases to exist, although it is possible in certain instances to reinstate registration of a company. The question for you, I guess would be - what would you like to achieve now and when does the term of the contract end? Also, could you please provide a relevant clause for "there’s a clause that if we do not re-sign, we have to sell them our business."?

 

[Vicki_]

What I want is to walk away with my business under my business name, and have nothing to do with them as they do not operate legitimately.

I assumed that if the company stated in the contract that it can not operate under any other names and the company is now deregistered. Does that void the contract and it’s clauses?

 

[Vicki_]

Hi Vicki,

Once a company is deregistered, it ceases to exist, although it is possible in certain instances to reinstate registration of a company. The question for you, I guess would be - what would you like to achieve now and when does the term of the contract end? Also, could you please provide a relevant clause for "there’s a clause that if we do not re-sign, we have to sell them our business."?

I believe they won’t go to those lengths, there’s a reason they deregistered. The contract ends this month, I have spoken to the franchise, they were meant to give us 2 weeks to look over the new contract, they sent it out a week before renewal date, no mention ever of the name change and offered new signage as a gesture of goodwill, not because it’s a new company. I noticed the name change on the new contract, hence the questions. I do not have a digital copy of the contract but I will try to get the page up with the info you asked for. Thank you for your help so far!

Regards,

 

[Olena Brodovska]

I believe they won’t go to those lengths, there’s a reason they deregistered. The contract ends this month, I have spoken to the franchise, they were meant to give us 2 weeks to look over the new contract, they sent it out a week before renewell date, no mention ever of the name change and offered new signage as a gesture of good will, not because it’s a new company. I noticed the name change on the new contract, hence the questions. I do not have a digital copy of the contract but I will try get the page up with info you asked for. Thank you for your help so far!

Regards,

Vicki.

Hi Vicki,

No problem. It would be good to see the 're-sign' clause which you referred to. Since the contract is frustrated by deregistration, I cannot see how a third party which is not privy to it can enforce your obligation under the contract.

Kind regards,

 

[Rod]

I agree, though assignment and novation is possible.

If you want a better answer you really need a lawyer to look into the various contracts, ASIC de-registrations, and any purported assignment or novation agreements.

 

[Olena Brodovska]

I agree, though assignment and novation is possible.

If you want a better answer you really need a lawyer to look into the various contracts, ASIC de-registrations, and any purported assignment or novation agreements.

I believe that neither assignment nor novation is possible if a counter-party has already been deregistered, unless registration is reinstated.