FEATURE


Be sure your agreementwith your suppliermeans you won’t be left holding stock if distributionmoves elsewhere.


stock in place without the need for fresh stock to be transported. If a new distributor is being


appointed, the same is true. Often themajor consideration


for the supplier is what will happen to the remaining stock if the supplier does not exercise its option to buy back. If a supplier suspects that a


distributor is going to offload the stock to a discount reseller (which could potentially damage the supplier’s image or brand), the suppliermight wish to exercise this option. But care is needed.Tis


is because EuropeanUnion competition law can impact on the ability of the supplier to impose criteria on a distributor in order to control the distribution of goods in this situation. Tis could be, for example,


by determining to whomthe remaining goods can be sold or the price at which they can be sold. Exercising the option to buy


back the stockmight therefore be the best and only chance that a supplier has to take control of the stock legitimately and prevent the goods fromentering into a particularmarket or otherwise prejudicing the brand. Fromthe distributor’s


perspective, the exercise by the supplier of the option can represent a straightforward and cost-effective opportunity to shift


the remaining stock. Once the time frame in which


the supplier can exercise the option has lapsed, the agreement might provide for the distributor to have a further time period in which it can sell off the stock. But when this further period


has itself lapsed, the distributor might become obliged to return the then remaining goods to the supplier – but without payment.


Sell-off period


Distributorship agreements usually contain a number of time periods. Distributors need to be aware of


all the deadlines in an agreement but, in particular,with regard to the sell-off period. Tis will ensure that its sales of


the remaining stock are completed – and deliveries have taken place to customers – well within the sell-off period. Selling off the stock after


the sell-off period has lapsed will constitute a breach of the distributorship agreement and possibly give rise to a claimfor damages by the supplier.


The right of set-off


Unlike the laws ofmany other countries,English law does not provide special protection for distributors when the distributorship agreement has come to an end. While there have been a


number of reported court judgments where it can be seen that attempts are beingmade by the judges to protect distributors that is comparable to that in which theCommercialAgents Regulations protects agents, there is still a way to go. As such, the situation can arise


that at the time of the termination of the distributorship agreement, the supplier has supplied stock to the distributor in respect of which payment has not yet beenmade by the distributor. It is at this point that supplier


and distributor need to look to the distributorship agreement to see whether it excludes a right of set-off. If it does not, the supplier can be faced with a situation where:


• the distributor claims (rightly or wrongly) that termination of the distributorship agreement by the supplier was itself a breach of the agreement and that the distributor has suffered loss; and


• the distributor then sells off the stock remaining at termination in accordance with the sell-off provisions; but


• does notmake payment to the supplier in respect of outstanding invoices and instead exercises a right of set-off against the damages it claims it has suffered as a result of wrongful termination


of the distributorship agreement by the supplier!


The end of a distributorship agreement


Few suppliers and distributors think to turn back to the original contract when it comes to an end. But re-reading the terms that


were agreed (most probably a number of years earlier) could well benefit both supplier and distributor by saving time or earning extra profits. Alternatively (and importantly)


it could also prevent a distributor fromlater finding itself in breach of the agreement and even facing legal proceedings.


Four top tips 1. Remind yourself of your rights and obligations on termination. 2. Diarise any deadlines for buying back, returning, or selling off the goods. 3. Distributors – ensure all sales and deliveries are completed well within the sell-off period. 4. Check whether your distributorship agreements exclude a right of set-off.


Veronique Bergau is an associate at specialist law firmFox Williams. www.foxwilliams.com


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