Transfer of Trademark contracts following receivership or Liquidation
The rules regarding judicial receivership and liquidation concerning the transfer of trademark contracts are identical to those relating to the sale of business assets. Thus, the sale of business assets does not automatically transfer contracts concluded by the company. The purpose of transfering of contracts is to ensure the continuation of activities capable of autonomous operation, including the trademarks attached to them, and to clear liabilities. Articles L.642-1 and following of the French Commercial Code govern this transfer of trademark contracts, which may be total or partial.
Understanding contract transfers in companies facing difficulties
The judge receives offers from third parties concerning the transferred company, presenting transfer plans to obtain the benefit of certain contracts necessary for the company’s activity. Trademark license contracts are therefore central to this plan. These contracts represent valuable intangible assets that can significantly influence the viability of a transfer plan and the future success of the acquiring entity.
Within this framework, it is first necessary to determine which contracts may be transferred on this occasion. Article L.642-7 of the French Commercial Code, which is subject to strict interpretation, exclusively covers ‘credit-lease, rental, or supply contracts for goods or services necessary to maintain the activity based on the observations of the debtor’s cocontractors transmitted to the liquidator or to the administrator when one has been appointed.’
Patent license contracts have been expressly recognized as belonging to the category of service supply contracts, as established by the Court of Appeal of Colmar on June 13, 1990. Trademark license contracts follow the same approach and may therefore be included in transfer plans. This judicial recognition clarifies the legal status of intellectual property licenses in insolvency proceedings and confirms their transferability as essential business assets.
The criterion of being ‘necessary to maintain the activity’ is subject to the sovereign assessment of the judge. The court particularly considers the economic aspects of goods without which the transferred company cannot continue its operations. This evaluation considers factors such as the centrality of the trademark to the business operations, the revenue generated through the licensed trademark, market recognition associated with the trademark, and the availability of alternative brands or marks.
Unique features of contract transfers in insolvency
The particularity of these contract transfers is that the intuitu personae nature of commitments is not considered. This represents a significant exception to general contract law: the cocontractor’s consent is not required. Therefore, a third party may exploit the acquired trademark without the trademark owner’s consent. This deviation from normal contractual principles reflects the policy priority of preserving viable businesses and employment over strict adherence to personal contract characteristics.
This forced transfer mechanism may create tension between intellectual property rights and insolvency law objectives. Trademark owners who carefully selected licensees based on quality standards, brand image considerations, or strategic alignment may find their marks in the hands of unknown entities. However, the law prioritizes business continuity and creditor protection in these circumstances, limiting the original licensor’s control over the trademark’s exploitation post-transfer.
Contract transfer procedures and requirements
Among the contracts expressly mentioned in the transfer plan, the acquirer cannot select those that interest them while abandoning others. However, the court cannot impose on them the takeover of a contract that would worsen the commitments undertaken during the preparation of their offer if the takeover of this contract was not mentioned in that offer. This provision balances the interests of the acquirer with the objective of maintaining business continuity.
Contracts are transferred on the date of judgment. However, practical considerations necessitated some flexibility, allowing the transfer of rights and obligations under these contracts to take effect only on the date of conclusion of the transfer acts or the acquirer’s taking possession. Until this transfer, charges remain attributable to the debtor, unless management is entrusted to the acquirer in advance, from the judgment date.
The contract transfer operates through a substitution of debtor under equal conditions, which has several implications for relationships between the parties. This mechanism preserves the original contract terms while changing the party responsible for performance, creating a legal continuity that facilitates business operations during the transition period.
Rights and obligations following transfer
First, the creditor and the transferor find themselves in opposing positions. While the transferor is released from the contract for the future, the creditor may seek contract termination only on the basis of general law applicable to the contract. This asymmetry reflects the policy that the transferor, having lost control of the business, should not remain liable for future contractual obligations.
Second, the transferor does not guarantee the acquirer, as the transfer was imposed on them. Article L.642-7 of the French Commercial Code does not reproduce former Article L.621-88 of the same code, which allowed granting payment delays to the acquirer. This possibility must therefore be considered abandoned. Consequently, it is the court’s responsibility to verify, before pronouncing judgment, that the potential acquirer possesses sufficient solvency to ensure the transferred contract’s obligations.
This solvency requirement protects creditors, including trademark licensors, from substitution with financially unstable entities. The court must conduct due diligence on the acquirer’s financial capacity, business experience, and ability to maintain the licensed activities. For trademark licenses, this assessement should include the acquirer’s capability to maintain quality standards, make required royalty payments, and uphold the brand’s reputation in the marketplace.
Fate of contracts outside the transfer plan
Until the ordinance of March 12, 2014, the law remained silent on this matter. Before this ordinance, the Court of Cassation held that the judgment ordering the transfer plan did not have terminate non-transferred contracts. The creditor subsequently had to initiate legal proceeding at their own expense to request contract termination due to the acquirer’s non-payment, relying on general contract law principles.
The Court of Cassation sanctioned a court that had exceeded its powers by canceling a contract not mentioned in the transfer plan when the court was only seized to rule on this subject, as decided in a commercial chamber decision of March 10, 2009. While part of doctrine suggested that early contract termination should open entitlement to damages for the creditor, neither case law nor the legislator went in this direction.
Following the 2014 ordinance, Article L.642-7 states in its last paragraph that the cocontractor of the non-transferred contract may request its termination from the supervising judge, provided the liquidator does not oppose it without needing to justify their decision. This provision creates an imbalanced situation in which the liquidator retains significant discretion, potentially leaving cocontractors uncertain about their contractual relationships.
The cocontractor of a company subject to a transfer plan is therefore in a far more uncertain position than in cases of safeguard proceedings and judicial receivership. In these cases, contracts not maintained following formal notice to the company in difficulty are automatically terminated. Consequently, the solution adopted by the 2014 ordinance is imperfect, and affected cocontractors are advised to be very vigilant at this level.
For trademark licensors, this uncertainty entails significant risks. A valuable license agreement may remain in legal limbo, neither clearly transferred nor definitively terminated. Licensors should work with experienced insolvency counsel to protect their interests, seek clarification of contract status promptly, and consider negotiating new arrangements with acquirers when possible. The DE BAECQUE BELLEC firm provides expert guidance navigating these complex situations, protecting intellectual property rights while recognizing the legitimate objectives of insolvency proceedings.
with Chinese trademark law while protecting your valuable intellectual property assets through ownership transitions.
Stéphane Bellec, Partner
Intellectual Property Attorney
Email: sbellec@debaecque-avocats.com
Tel: +33 (0) 1 53 29 90 00