Archive

Capitalisation of interest: a bridge too far?

Trust reigns supreme, but it is better to be safe than sorry …

The relationship between franchisor and franchisee is based on trust, but also on various obligations, some of which are financial. In this context, although undesirable, some payment delays can occur. In those circumstances, specific legal tools may come into play, and here we refer the reader to our article (available in FR and NL) on debt collection.

Franchise agreements, or the franchisor’s general terms and conditions, often contain specific clauses designed to encourage franchisees to meet their payment obligations, such as: automatic cancellation of the period allowed for payments without prior notice, additional fees and interest, fixed compensation in the event of delay, the loss of certain benefits otherwise granted, or even automatic termination of the franchise agreement in the event of non-regularisation after formal notice. Less common, but worthy of attention, is the clause providing for “capitalisation of interest”. This technique, which consists of the accrual of interest on unpaid amounts by adding the interest to the principal amount due, so that the interest compounds, can play not only a financial role but also encourage certain franchisees to be more rigorous.

What interest can a creditor claim?

Under Belgian law, there are several categories of interest that may be claimed.

• Default interest, payable as compensation for the loss resulting from the late performance of a monetary obligation the amount of which is determined or sufficiently determinable; this includes, for example, invoices relating to royalties or certain services provided by the franchisor.
• Remunerative interest is interest that serves as compensation for the provision of capital; for example, when a franchisor makes a loan to a franchisee to finance the launch of the latter’s activities.
• Compensatory interest is due as compensation for damage resulting from the non-performance of a monetary obligation the amount of which has not been fixed and which must therefore be determined by the parties or by a court. Here, we refer, for example, to compensation for the infringement of a trademark right or of a non-competition clause.

Concerning capitalisation of interest in the first two categories, Article 5.207 of the new Civil Code (Article 1154 of the former Civil Code) sets out the conditions of application. On the other hand, Compensatory interest, does not fall under these legal provisions and it may only be compounded to the extent that it can be shown that doing so is necessary in order to obtain full compensation.

Compounding of interest

Interest capitalisation – or ‘compounding of interest’ (also referred to as “anatocism”) – consists of incorporating the accrued interest into the principal so that interest is generated on the total amount. When a monetary obligation is not fulfilled, interest begins to accrue from the date of formal notice to the debtor, unless otherwise provided by law or agreement. Once the interest has accrued, and provided that the legal conditions are met – in particular a maturity of at least one year and a legal claim, formal summons or express agreement – this interest may be compounded. It is then added to the capital and, in turn, begins to generate interest.

Article 5.207 of the new Civil Code provides that ” Accrued interest on the principal amount may [only] bear interest [itself], whether by judicial order or by special agreement, provided that, either in the order or in the agreement, the interest in question is due for at least one full year.”

Article 1154 of the former Civil Code provides that “Interest due on capital may [itself] bear [compound] interest, either by judicial summons or by special agreement, provided that, in either the summons or the agreement, the interest is due for at least one full year.”

To illustrate the effect of compounding (capitalising) interest, we will take the example of a debt of EUR 1,000 over a period of eight years at an interest rate of 8% per annum: without capitalisation the amount due would be EUR 1,640, but if compound interest is applied that amount rises to EUR 1,851, which means an increase in the amount of interest due of almost one third.

Franchise agreements normally provide for default interest in the event of late payment of royalties and/or other remuneration, and more rarely for certain advances made to the franchisee. It then becomes possible to compound default interest that has been due for at least one year. Given that delays in the judicial system have an unfortunate tendency to grow daily, legal disputes tend to drag on. The capitalisation option makes it possible to increase the basis on which any interest due is calculated. That prospect may weigh on the franchisee’s mind and encourage them to settle their debt quickly rather than watch it grow exponentially.

What if the franchisor does not include any provisions regarding interest in their contract or terms and conditions?

There is no real concern concerning default interest, as franchise agreements are subject to Article 5 of the Law of 2 August 2002 on combatting late payment in commercial transactions. Under this text, when payment has not been made by the agreed due date, default interest becomes automatically payable, without the need for prior formal notice. This interest therefore accrues automatically from the day following the due date of the debt — as a rule, one month after the obligation arose, unless another deadline is stipulated in the contract. After one full year has elapsed, the capitalisation of default interest may be requested by means of a formal notice. It should also be noted that remunerative interest on arrears falls indirectly under the application of the 2002 law, provided that it is unpaid or that allowing certain contractual exemptions would be manifestly unfair.

For information, the statutory interest rate applicable in the event of late payment in commercial transactions can be found on the website of the Federal Public Service Economy. It is set at 10.5% per annum for the first half of 2026, while the (ordinary) legal interest rate for 2026 is set at 4.5%. (These rates are the same as for the second semester of 2025 and for calendar 2025.)

(Article text finalised on 30 December 2025. Applicable interest rates verified on 30 March 2026.)

Read More

The International Emergency Economic Powers Act (“IEEPA”) does not authorise the US President to impose tariffs.

Briefing: The Supreme Court of the United States (“SCOTUS”) has ruled, by a majority, that the International Emergency Economic Powers Act (“IEEPA”) does not authorise the US President to impose tariffs.

Consolidated Cases No. 24-1287 Learning Resources, Inc. v. Trump, President of the United States | together with No 25-250 Trump, President of the United States v V.O.S. Selections, Inc. (hereafter the “IEEPA Judgment”).

Leonard Hawkes and Professor Suzanne Rab #

25 February 2026

Why read this briefing? First, this briefing focuses on what the SCOTUS said. Second, it explains what certain current consequences of the IEEPA Judgment are and what the future consequences may be. Third, it can also help with evaluation of whether import tariff payments on which IEEPA tariffs were imposed may be recoverable.

Background (The alphabetical references here and in the SOTU and Introduction sections below can be found in the end-notes.)

As a result of tariff actions since January 2025, the U.S. average effective tariff rate as of mid-September 2025 was the highest it has been since the 1930s; according to one (Yale University) estimate, the U.S. overall average effective tariff rate increased from approximately 2.5% in January 2025 to 17.4% in September 2025.[a] Since imposing these tariffs, the Trump Administration has been negotiating agreements with U.S. trading partners and reached preliminary agreements or understandings with some, including the European Union[b], Japan, South Korea, the United Kingdom,[c] and Vietnam, among others. Until now, these arrangements generally committed to reducing the President’s initially proposed tariff rates, while maintaining an overall increase in tariff rates.[d]

US President Trump’s State of the Union (“SOTU”) Address 24 February 2026

In his annual State of the Union Address President Trump insisted that despite the IEEPA Judgment his tariff programme would continue despite the ‘disappointing’ SCOTUS ruling, [Tariffs] “Will remain in place under fully approved and tested alternative legal statutes and they have been tested for a long time. They’re a little more complex, but they’re actually probably better. Leading to a solution that will be even stronger than before. Congressional action will not be necessary.”[e]

Introduction

The judgment handed down by the SCOTUS on Friday last week, 20 February, invalidates the Trump administration’s IEEPA-based tariff programme. It finds that the President did not have authority to unilaterally impose tariffs (taxes on imports) under that Act. There are U.S. constitutional implications regarding the boundaries of the Congress and the US President’s powers to raise taxes. There are practical implications regarding i) the possibility of recovering IEEPA tariffs that were paid before the judgment and ii) the replacement of the IEEPA tariffs by a non-discriminatory 10% tariff on all imports to the United States as from yesterday, 24 February 2026, under section 122 of the Trade Act of 1974. (The “s122 tariff”.) (The initial s122 tariff of 10%[f] could rise to 15%.)

What the majority said in the IEEPA Judgment

IEEPA, enacted in 1977, authorises the President to “regulate… importation or exportation” during a declared national emergency. The Trump administration argued that the words, “regulate” and “importation,” included the power to impose tariffs. The majority in the SCOTUS rejected that interpretation unanimously but fractured sharply on why. Chief Justice Roberts, together with Justices Gorsuch, and Barrett applied the major questions doctrine, namely: that Congress must speak clearly before delegating what the Chief Justice called the “core congressional power of the purse,” (p8). IEEPA did not contain such clarity. No President had invoked IEEPA to impose any tariff in its fifty-year history. The stakes, Chief Justice Roberts observed, “dwarf those of other major questions cases.” Justices Kagan, Sotomayor, and Jackson concurred in the result but on plain statutory grounds: the word “regulate” has never been read, in any other statute, to include the power to tax, and reading it to cover tariffs would also authorise taxing exports – which the Constitution expressly prohibits. Justice Jackson separately relied on the legislative history of IEEPA and its predecessor to the same effect.

U.S. Constitutional implications

Article I, Section 8, of the US Constitution vests in Congress the power to “lay and collect Taxes, Duties, Imposts and Excises.” That constitutional architecture matters. The Government’s entire case rested on two words in IEEPA – “regulate” and “importation” – separated by sixteen others in IEEPA section 1702(a)(1)(B). The administration read those words as conferring unlimited tariff-setting power on the Executive: any amount, any duration, any product, any country, at the President’s sole discretion. The six-justice SCOTUS majority profoundly disagreed with the Government’s position, although, as noted above, the majority itself then fractured on the correct rationale for that disagreement.

Practical implications i) What possibility of recovering IEEPA tariffs?

The SCOTUS judgment found the tariffs were levied without due authority and, by necessary implication, that they are not ‘voidable’ (prospectively) but were void as from the start. However, the Court only answered the narrow question of legality that it posed itself (whether the IEEPA authorises the President to impose tariffs). It does not offer any guidance on recovery of the unauthorised duties. There could be a legislative solution for this question, or solutions could be found piecemeal through litigation.

On Monday, 23 February, 2026, certain US Senators (all of whom are Democrats), sponsored a Bill, the Tariff Refund Act of 2026, to provide for the refund of duties imposed under the IEEPA, with interest, within 180 days. The draft legislation requires U.S. Customs and Border Protection (“CBP”), which would oversee such reimbursements, to prioritise small businesses.[1] (There is currently no bi-partisan or Republican sponsored initiative to the same effect.)

As regards litigation, on the other hand, there are several reports, also from Monday, 23 February, that FedEx, the large package, commercial delivery and logistics company, filed a lawsuit in the U.S. Court of International Trade seeking a refund for the IEEPA tariffs. Reuters reported that the lawsuit stated: “Plaintiffs seek for themselves a full refund from Defendants of all IEEPA duties Plaintiffs have paid to the United States.”[2]

It has also been reported that more than 1,500 companies had already filed lawsuits to protect their refund rights in the U.S. Court of International Trade before the IEEPA Judgment.[3]

Practical implications ii) Replacement of the IEEPA tariffs by a non-discriminatory 10% (or 15%) tariff on all imports to the United States for 150 days.

In his dissenting judgment, at page 50, Justice Kavanaugh explicitly identified the alternative statutory vehicles the administration can use to re-impose equivalent measures to those found to be unauthorised by the majority: namely Section 232 of the Trade Expansion Act of 1962, Sections 122, 201, and 301 of the Trade Act of 1974, and Section 338 of the Tariff Act of 1930.

The Administration’s Immediate Response: Section 122 tariffs at 10%

Within hours of the ruling, President Trump announced a 10% global tariff under Section 122 of the Trade Act of 1974. (The “Trade Act”). (By Saturday morning he had suggested that could increase to 15%: the maximum permitted under that statute.[4]) The 10% tariff took effect, yesterday, 24 February and runs for 150 days, expiring on 23 July 2026, unless Congress approves an extension.

What about the future?

No President has previously invoked Section 122 of the Trade Act to impose tariffs. The legal basis for doing so is already being questioned, but any judicial challenge will take months. Moreover, the Administration has explicitly said it intends to use the 150-day window to carry out investigations under Section 232 and Section 301 of the Trade Act to replace the Section 122 tariff.

The Trump Administrations options, and the requirements for their correct application, are usefully summarised in the table below.[5]

Review and Potential actions

The Section 122 10% tariff came into force yesterday. (For more complete information about application of the Section 122 tariff, please refer to endnote ‘f’ below). The 150-day clock ending at midnight on 23 July, is running.

Your priorities could include the following:

• Identify which of your US import entries attracted IEEPA duties and map protest filing deadlines – some are already imminent.[6]
• Determine which entity in your group structure bore the economic burden of duties paid and whether a recoverable claim exists.
• File protective Bi-lateral Investment Treaty (“BIT”) notices of dispute where any investment treaty limitation period risk exists.
• Review 2025 commercial contracts for force majeure, hardship, and Material Adverse Change (“MAC”) clauses triggered by tariff costs.
• Assess your exposure to the new 10% Section 122 tariff, including whether any of product categories fall within the exemptions.
• UK businesses: take urgent advice on whether your EPD sector carve-outs (automotive, aerospace, pharmaceuticals) remain enforceable and what your position is on the 10% general goods rate after 23 July, 2026.
• EU exporters: take advice on whether your arrangements under the 2025 EU–US (Turnberry Deal) framework remain enforceable under the new statutory landscape*.

* The Turnberry Deal

In July 2025, the EU and the US reached a political agreement on tariff and trade issues (the so called “Turnberry Deal”). The International Trade Committee (“INTA”) of the European Parliament announced on Monday, 23 February, 2026 that it had put the legislative work for implementation of the Turnberry Deal on hold following the IEEPA Judgment and the US Administrations reaction to it. It commented: “The proposed replacement for IEEPA, Section 122, applies indiscriminately to all countries exporting to the United States and is imposed on top of the Most Favoured Nation (MFN) rate. As a result, imports from the EU into the US would be subject to an applied rate exceeding the 15% threshold. This, in itself, constitutes a clear departure from the terms of the Turnberry Deal.”^[7]

Postcript

The fundamental importance of the issues raised by the Learning Resources, Inc. and V.O.S. Selections, Inc. cases argued and the issues they raise is underlined by the fact that although Chief Justice Roberts announced the majority judgment and opinion of the Court and each of Justice Sotomayor, Justice Kagan and Justice Jackson agreed; they joined only Parts I, II-A-I and II-B of that opinion. The concurring judgment of Justice Gorsuch is more than twice as long as the majority opinion. There are also three dissenting judgments, of which Justice Kavanaugh’s is the principal dissent[8].

Biographical #

Leonard Hawkes, is a Solicitor (Juriste conseil) and Of Counsel, at FLINN.law Brussels (www.flinn.law),

Professor Suzanne Rab is a barrister at Matrix Chambers in London who practises international trade law, competition law, and investment treaty arbitration (www.matrixlaw.co.uk).

The authors would like to thank Professor Niall J. Moran (Assistant Professor in Economic Law at the School of Law and Government at Dublin City University and Deputy Director of the DCU Brexit Institute) for his comments on drafts of this article.

Footnotes:

[1] See: https://www.finance.senate.gov/ranking-members-news/wyden-markey-shaheen-and-19-senate-democrats-release-legislation-requiring-refunds-of-trumps-illegal-tariffs, accessed Feb’26. The News release estimates the unauthorised collection of tariff revenue at US$ 175 billion.

[2] See: https://www.reuters.com/world/fedex-sues-us-refund-trumps-emergency-tariffs-2026-02-23/ ,accessed Feb’26. What appears to be a complete draft of the complaint, showing the wording referred t, is also available at: https://storage.courtlistener.com/recap/gov.uscourts.cit.19237/gov.uscourts.cit.19237.2.0.pdf

[3] Source: https://www.freightwaves.com/news/what-the-ieepa-scotus-ruling-means-for-american-freight .

[4] Section 122 Trade act allows the President to impose temporary tariffs of up to 15% to address “large and serious balance-of-payments deficits.”

[5] Source: Congressional and Presidential Authority to Impose Import Tariffs, Updated April 23, 2025, at page 26. See: https://www.congress.gov/crs_external_products/R/PDF/R48435/R48435.2.pdf , accessed Feb’26.

[6] When goods enter the country, importers pay estimated duties. Customs then has a 314-day window to “liquidate” each entry and finalise the amount owed. Once an entry liquidates, the duty amount becomes final unless the importer has filed a timely protest or obtained a court-ordered suspension of liquidation. Source : https://www.freightwaves.com/ op cit.

[7] Source EP INTA Press Release (accessed Feb’26):

https://www.europarl.europa.eu/pdfs/news/expert/2026/2/press_release/20260223IPR36005/20260223IPR36005_en.pdf

[8] ROBERTS, C. J., announced the judgment of the Court and delivered the opinion of the Court with respect to Parts I, II–A–1, and II–B, in which SOTOMAYOR, KAGAN, GORSUCH, BARRETT, and JACKSON, JJ., joined, and an opinion with respect to Parts II–A–2 and III, in which GORSUCH and BARRETT, JJ., joined. GORSUCH, J., and BARRETT, J., filed concurring opinions. KAGAN, J., filed an opinion concurring in part and concurring in the judgment, in which SOTOMAYOR and JACKSON, JJ., joined. JACKSON, J., filed an opinion concurring in part and concurring in the judgment. THOMAS, J., filed a dissenting opinion. KAVANAUGH, J., filed a dissenting opinion, in which THOMAS and ALITO, JJ., joined.

Endnotes:

[a] Congressional Research Services – Executive Branch Tariff Actions in the 119th Congress R48716 page 3. https://www.congress.gov/crs_external_products/R/PDF/R48716/R48716.1.pdf accessed Feb’26.

[b] White House, Joint Statement on a United States-European Union Framework on an Agreement on Reciprocal, Fair, and Balanced Trade, August 21, 2025, https://perma.cc/SP5Z-4A3H accessed Feb’26.

[c] Executive Order 14309 of June 16, 2025, https://www.govinfo.gov/app/details/DCPD-202500699  Accessed Feb’26. “Implementing the General Terms of the United States of America-United Kingdom Economic Prosperity Deal,” 90 Federal Register 26419, June 23, 2025.

[d] CRS R48716 ibid.

[e] Source: https://www.npr.org/2026/02/25/nx-s1-5716159/trump-congress-state-union-read , accessed Feb’26

[f] An U.S. Customs and Border Protection Cargo Systems Messaging Service update CSMS #67844987 Imposing Temporary Section 122 Duties, provides the following guidance: “For articles that are the product of any country entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on February 24, 2026, and through 12:01 a.m. eastern daylight time on July 24, 2026, the following […] additional duty rate [applies] an additional ad valorem rate of 10%. Certain exemptions including for aircraft parts and engines, passenger vehicles, crossover utility vehicles, minivans and light trucks and semi-conductors are then set forth.

Read More

Why choose franchising today?

“None of us is as good as all of us”*

* Ray Kroc – architect of the expansion of the McDonald’s franchise

Sooner or later, many entrepreneurs achieve the point where their organisation is rock solid: the concept works, the product or service package has proven successful, and the financial results are beyond satisfactory. At that point, the next natural step is clear: why not GROW the business!  Anyone considering growth is soon faced with some key strategic choices. As an entrepreneur, are you going to set up and finance every branch or new unit yourself? Is franchising the right formula for growth? Like Ray Kroc, are you going to opt for commercial cooperation with partners who believe in the commercial concept and are also willing to invest in their own business, while contributing to the overall growth of the business format?

Even start-ups and new entrepreneurs soon have to make important choices.  Do you opt for complete independence, with maximum scope for personal creativity, innovation and developing your own concept? Or could using a proven and successful business franchise format in which structure, support and brand awareness are central (but where not all aspects can be configured freely), be a better alternative? Those who opt for franchising are consciously choosing to be independent entrepreneurs but within a set of clearly defined rules. Franchise agreements are intended to protect and strengthen the brand, the network of franchisees and their joint success, even if this sometimes limits individual freedom and creative scope.

Before committing to a franchise formula, it is essential for a potential franchisor to first assess the ‘franchisability’ of his/her business format. Not every successful concept is automatically suitable for franchising. There are four key criteria that a franchise system must meet:

• Strongly distinctive concept: the concept must be unique and offer clear added value compared to competitors.
• Strongly positioned and recognisable brand: the brand must be recognisable and inspire confidence in customers and franchisees. The brand is one of the foundations of the franchise system.
• Proven financial success: the system must be demonstrably profitable and have a stable financial basis.
• Replicability and transferable know-how (‘savoir-faire’): the processes, knowledge and expertise must be easily transferable to franchisees so that the concept can be implemented consistently in multiple locations.

Having confirmed that this checklist of basic criteria is met, you can begin further development of the concept. This preparatory phase will include: – definition of standards, training, support services, including IT, and operational organisation.  You also need to work on a strong legal framework and a robust financial plan. Taken together, these aspects constitute the fundamental blueprint for the franchise system.

The Belgian legislator has ‘translated’ the building blocks mentioned above into a legal definition of ‘commercial cooperation agreements’[1].  Although that is, arguably, less important for the purposes of this article, nevertheless, being aware of the Belgian law requiring documentation of precontractual information (set forth in the 2024 “PID Act”), is essential. As implemented in the Belgian Code of Economic Law, the PID Act obliges franchisors to provide reliable pre-contractual information to prospective franchisees, thereby reducing the risk of misunderstandings.

For now, however, let us go back to the key question at the heart of this article. ‘Is franchising the right business format that will permit optimal growth of my business?’

 

What are the reasons why entrepreneurs may consider creating or joining a franchise? A non-exhaustive overview of the main advantages and disadvantages for both franchisors and franchisees is set forth below:

The advantages

For the franchisor:

• Franchisors can set up a growth process with limited capital and build a network with limited risk.
• Collaboration with local partners through franchising makes it possible to enter new markets more quickly and at the same time and ensures strong local anchoring. Franchisees contribute local market knowledge, which makes the growth of the concept and the network more efficient and robust.
• Franchising creates economies of scale: a larger network leads to joint purchasing, marketing and knowledge sharing, ensuring more efficient processes within the network.
• Through long-term collaborations, the franchise system generates recurring income for the franchisor through royalties and cost contributions, making cash flow more stable.
• The structure of the model allows the franchisor to focus more on core activities such as strategic vision, system development, innovation and brand management rather than on day-to-day operational tasks.

For the franchisee

• Franchisees invest in their own outlet and actively contribute to the growth of the entire network.
• Choosing to become a franchisee combines the advantages of independent entrepreneurship with the strength of an existing and successful concept. Franchising can be considered a ‘ready-to-use’ business system: a developed and tested concept that allows for a faster start-up than with a completely autonomous initiative.
• As a franchisee, you are not alone. You become part of a network of like-minded entrepreneurs within the same system: a club of colleagues with a shared passion, in which experience, insights and best practices are all exchanged.
• Within the franchise network – long term collaborations not only strengthen entrepreneurship, but also the joint success of the system.
• The franchisor shares its knowledge and experience (know-how) and offers targeted support to the franchisee, both during the start-up and during the further expansion of the business. This allows the franchisee to reach ‘cruising speed’ more quickly and focus on the day-to-day operations and commercial growth of their franchise unit(s).

In addition to the undeniable advantages, there are disadvantages and significant challenges, or let’s call them rather ‘points for consideration’, for both the franchisor and franchisee:

Points for consideration

For the franchisor

• The transition from a traditional operating model to a franchise system implies a significant shift in management and governance. Operational management makes way for strategic leadership, with the focus shifting to managing, supporting and monitoring franchisees within the framework of a standardised system.
• The franchise model implies a different financial revenue model, whereby the franchisor generates income through franchise fees and royalties, which entails a fundamentally different income and cost dynamic. An appropriate P&L approach and careful financial planning in advance are required to correctly assess profitability and cash flow at the level of the franchise network.
• The success of the network depends heavily on the performance of the franchisees, which poses a systemic risk, requires additional coordination and may be challenging to manage.
• There is also a significant risk to brand reputation, as one underperforming branch can affect the brand perception of the entire network, especially in the start-up phase.

For the franchisee

• Success does not come automatically, even within a franchise system. The result is largely determined by the franchisee’s commitment, discipline and entrepreneurial mindset. The system provides a framework and support, but day-to-day implementation and local anchoring remain crucial.
• It is also important to keep expectations realistic. Franchising is not a guarantee of success. Dreams of quick profits or effortless growth without intensive involvement are often illusory. A clear understanding of investments, workload, profitability and growth potential will help prevent disappointment in the longer term.
• Choosing the right type of franchise concept is essential: do you opt for ‘hard franchising’, where processes and decisions are strongly controlled, or ‘soft franchising’, which leaves more room for autonomy and your own entrepreneurship? The degree of control must match the personality, competencies and expectations of the franchisee.
• Check the history of the brand and concept, how many points of sale are there? Visit existing franchise branches and talk to the franchisees. Ask questions, share your concerns and listen to their feedback. Check how many franchises have closed in recent years? How many are yet to be opened?

Making the right choice requires careful and thorough preparation by both parties:

For the franchisor, as mentioned above, there is the implementation of the franchise system which requires the careful creation of a number of essential tools, including a carefully elaborated know-how (or ‘brand’) book, setting out in detail the vision, values and standards of the network.  A tailor-made business plan with sufficient attention to regular cash planning for both franchisor and franchisee.  A strong, but balanced, franchise agreement that not only provides safeguards regarding the ‘third-party’ franchise network but also emphasizes the spirit of sharing a ‘win-win’ between franchisor and franchisees and which pays attention to regular communication and appropriate dispute resolution mechanisms (including mediation).

As mentioned above, franchisors are obliged to provide reliable pre-contractual information to prospective franchisees. The Pre-Contractual Information Document (“PID”) is the absolute cornerstone of a transparent and sustainable franchise relationship. The more honest, complete, accurate and detailed this document is, the better prospective franchisees will be able to form a correct and realistic picture of the concept, the system, the support offered and the associated costs and benefits.

Franchise: Negotiation and PID Obligations

The existing PID obligations were expanded by an Act of February, and Royal Decree of August, 2024. They now include, among other things, the franchisor’s obligation to share an estimated operating account for a period of at least three years with the prospective franchisee.[2]

However, the prospective franchisee also has a responsibility to study the PID carefully and critically, and to be completely transparent with the franchisor about their own experience and financial situation. The PID largely determines the chances of success of a long-term, balanced and successful partnership without the unpleasant surprises that are not in the interests of either party. We recommend organising a thorough question and answer session before signing the franchise agreement to allow any ambiguities to be clarified and further refine expectations. Franchisees are also highly recommended to seek appropriate expert assistance, from accountants, franchise experts and/or lawyers during the cooling-off period if they have not already done so beforehand.

Final Thoughts: Franchising is not a guarantee of success, but it is a scalable and capital-efficient growth model that enables companies to accelerate the expansion of their market position. The strength of franchising lies in the systematic organisation of a network of independent entrepreneurs within a centrally managed strategic operational framework. By combining local entrepreneurial spirit with central brand management, processes and expertise, a whole that performs structurally better than individual companies can be created.

In this context, Ray Kroc’s famous quote – “None of us is as good as all of us” – succinctly summarises what franchising makes possible economically and strategically. This same idea also forms the core philosophy of the Belgian Franchise Federation (BFF). Ray Kroc’s quote emphasizes that cooperation is central: franchisors and franchisees each contribute to a stronger whole, based on their respective roles and expertise. Only by sharing knowledge, aligning interests and jointly building professional and sustainable systems can the franchise model realise its full potential.

Alexander DUPONT	&	Benoit SIMPELAERE
alexander.dupont.be@gmail.com		benoit.simpelaere@flinn.law

*** *** ***

[1] Art. I.11. Belgian Code of Economic Law.

[…]  2° “commercial cooperation agreement”: agreement concluded between two or more persons, whereby one person grants to the other the right to use a commercial formula in the sale of products or the provision of services in one or more of the following forms:

– a common brand;
– a common trade name;
– a transfer of know-how;
– commercial or technical assistance.

[2] Laruelle 2.0 Act – “Much ado about nothing”? Presentation by Alexander Dupont and Benoit Simpelaere at the Belgian Franchise Federations Experts’ Day on 14 November 2024.

Read More

The 2025 International Lawyers M&A Conference in Brussels

17 & 18 October 2025

The International Lawyers M&A conference , co-hosted by FLINN.law and UEPA advokáti, took place in Brussels on October 17–18 and was a great success. Over two days, lawyers, economists, and corporate experts from 22 jurisdictions, gathered to explore the latest developments and challenges shaping mergers and acquisitions around the world.

From the very first session, the event’s energy and international spirit were unmistakable. Benoit Simpelaere of FLINN.law and Lars Klett of UEPA advokáti opened the conference, setting the tone for a rich and collaborative exchange of ideas.

Inspiring Sessions and Expert Insights

The program was packed with thought-provoking presentations and lively panel discussions.

• Peter Vanden Houte, Chief Economist at ING Belgium, offered a powerful opening keynote on the global economic and financial outlook driving today’s M&A markets.
• The first theme, “Difficult Times and M&A,” brought together Søren Hornbæk Svendsen (Horten, Copenhagen), Nicolas Maubert and Matthieu Bringer (Rive Droit, Paris), and Ralph Imoberdorf (Altenburger, Zurich) to explore the interface between M&A and insolvency.
• In later discussions Dr. Bart Devos, of Boels and Partners, explored the strength of attitude that a Family Office can bring to M&A transactions whilst, Len Hawkes (FLINN.law) and Kai Schadbach (Schadbach Rechtsanwälte, Frankfurt), discussed the growing need to document compliance with ESG (Environment, Sustainability and Governance) criteria many acquisitions.

The second day focused on Technology and M&A, featuring insights from Hugh Reeves (Walder Wyss, Lausanne) and Bruno Grangier (Leaf, Shanghai), who examined how cyber-sovereignty and digital innovation are transforming global deal-making. Other highlights included a presentation on the proposal for a European Start-Up and Scale-Up (ESSU) company and a dynamic panel on Crossborder M&A and cultural differences, with experts from Spain, Germany, Canada, the U.S., and the Czech Republic.

Networking and Brussels Charm

Beyond the conference sessions, participants enjoyed memorable networking opportunities, most notably the evening reception on Friday. The warm and collegial atmosphere reflected the spirit of the event: serious discussion paired with genuine connection.

Vibrant with its 2025 Art Deco tributes and exhibitions, Brussels provided the perfect business and cultural backdrop for the event.

Looking Ahead

The 2025 International M&A Conference program, revitalized and stronger than ever, confirmed the appetite of the participants to share high-level expertise, participate in open dialogue and create the international camaraderie to support successful co-operation on cross border mergers and acquisitions.

The organizers, FLINN.law and UEPA advokáti, extend heartfelt thanks to all speakers and participants for their invaluable contributions.

We’re already looking forward to the next edition, where we’re sure that the participants will continue exploring the evolving landscape of M&A with the same passion, insight, and spirit of collaboration.

See you next year !

Read More

Progress on the UK’s Data (Use and Access) Bill

1 April 2025

… and … no, it’s not a ‘poisson d’avril’

Introduction

The UK’s Data Protection and Digital Information (No2) Bill (“DPDI-2 Bill”) failed to pass into law before Parliament was dissolved at the end of May 2024. However, the new Labour government has introduced a Data (Use and Access°) Bill (the “DUAB”), which revives many provisions of the previous legislative initiative. This article briefly discusses the DUAB its objectives, scope and implications for innovative data use.

Objectives of the DUAB:

The Data (Use and Access) Bill (DUAB) was introduced in the House of Lords on 23 October 2024, following the dissolution of the previous Parliament, which led to the loss of the DPDI-2 Bill. The DUAB aims to modernise the UK’s data protection framework, promote economic growth[1], improve public services[2], and make people’s lives easier[3].

DUAB Scope: key provisions:

When enacted, the DUAB will do much more than revise the UK’s data protection legislation (UKGDPR and the 2018 Data Protection Act). It will:

1. Enable Smart Data Schemes: permitting consumers to securely share their data with authorised third-party providers (“ATPs”) for innovative services like automatic account management and switching of accounts enabled through data portability. For the present the ‘Open Banking’ standard and protocols are the only operational example of such a scheme.
2. Help to establish Digital Verification Services (“DVS”): putting a legislative structure for DVS into place, thereby enabling users to create trusted digital identities with certified providers. This aims to provide digital identities in a form as reliable as any paper document.
3. Establish a confidential National Underground Asset Register (“NUAR”): Providing secure access to location data about pipes, cables, and other underground apparatus to improve the efficiency and safety of underground work.
4. Update the Registers for Births and Deaths: up-dating from paper-based to electronic systems, again enhancing efficiency and security of the information.
5. Introduce Data Protection and Privacy changes: by making changes to the Data Protection Act 2018, UK GDPR, and Privacy and Electronic Communications Regulations 2003. Notable changes include those concerning:

• Automated Decision-Making (ADM): Allowing decisions based solely on automated processes in wider circumstances although requiring stringent safeguards.
• Legitimate Interests: Introducing a new lawful ground of ‘Recognised Legitimate Interest’ (“RLI”) without requiring data controllers to carry out a balancing test when processing personal data for key public interest purposes.

6. Abolish the Information Commissioner’s Office: and transfer its functions to a new body, the Information Commission, with a chief executive and board of directors. (Although the ICO ‘brand’ will survive.)
7. Strengthen obligations on providers of online services likely to be accessed by children: ensuring their safety and privacy by delineating Children’s Higher Protection Matters.
8. Introduce new criminal offences: for creating or soliciting the creation of intimate images without consent.

Reactions and Concerns from the Information Commissioner’s Office:

The Information Commissioner has expressed his support for the DUAB’s ’pragmatic’ and ‘proportionate’ amendments.

“Overall, the Bill remains one which I support as improving the effectiveness of the data protection regime in the UK, upholding people’s rights, providing regulatory certainty and clarity for organisations and improving the way the ICO regulates”.

He has noted the concerns raised about widening the scope for Automated Decision Making (… ”this is an area of significant debate”…). He agrees that creating new criminal offences of producing sexually explicit digital images without consent is the most effective way to address these issues. On the other hand, he … “would welcome assurance from government that they have considered and assessed any implications for the European Commission’s forthcoming review of the UK’s adequacy status”, in view of statements regarding the incompatibility of the new offence with the European Convention of Human Rights (“ECHR”)[4]. (The EU Commission’s adequacy assessments for the UK are due to expire on 27 June 2025, unless renewed.)

 

Conclusions:

The DUAB represents a significant effort to modernise the UK’s data protection framework, promote economic growth, and improve public services. The DUAB is currently progressing towards its Report stage (a last chance for debate on the floor of the House) and Third Reading in the House of Commons. Amendments made by the House of Lords have been removed in the most recent text of the DUAB adopted after the House of Commons Committee stage, so it will have to be reviewed again in the House of Lords. Once the DUAB is adopted, it has been suggested that the Government is likely to follow-up by introducing legislation on AI within the next eighteen months.

 

[1] https://www.gov.uk/government/publications/data-use-and-access-bill-factsheets/data-use-and-access-bill-factsheet-growing-the-economy

[2] https://www.gov.uk/government/publications/data-use-and-access-bill-factsheets/data-use-and-access-bill-factsheet-improving-public-services

[3] https://www.gov.uk/government/publications/data-use-and-access-bill-factsheets/data-use-and-access-bill-factsheet-making-lives-easier

[4] Information Commissioner’s updated response to the DUAB HC, 10 February 2025. Available from https://ico.org.uk/about-the-ico/the-data-use-and-access-dua-bill/information-commissioner-s-updated-response-to-the-data-use-and-access-dua-bill-house-of-commons/ .

 

Disclaimer: This article may not deal with every important topic or cover all important aspects of the subject matter. It is not intended, and should not be used, as a substitute for seeking appropriate legal advice on specific questions.

Read More

WEBINAR – Bankruptcy v. Re-organisation in 2025: European Perspectives for Distressed Businesses

Join us: Flinn (Brussels), Stevens & Bolton (London) and Cuatrecasas (Lisbon) for this free 😊 👏 Webinar

On March 27th at 3:30 PM (CET)!

Our joint Corporate Restructuring and Insolvency seminar is just around the corner!
Take this great opportunity and hear our leading speakers on key European trends, challenges, and strategies in corporate restructuring and insolvency.

Please Register using this Link.

https://docs.google.com/forms/d/e/1FAIpQLSfy28XOy5nVdZXbSZYpOYlRh1DghQeJhGW7T5ayYqupXfH9jw/viewform

 

Read More

SILENT BANKRUPTCY

Jan 22, 2025

When a company is no longer able to pay its short-term debts and is no longer considered creditworthy, the company must file for bankruptcy within a month. In traditional bankruptcy, once the filing is made the court will pronounce the bankruptcy immediately and a bankruptcy notice will be published in the Belgian Official Gazette. A receiver will be appointed, as well as a supervisory judge to oversee the procedure.

Since the introduction of Articles XX.97/1 to XX.97/6, which has applied as from1 September 2023, the Belgian Code of Economic Law (“BCEL”) allows a company in bankruptcy to prepare for bankruptcy quietly, i.e. without publicity.

A silent bankruptcy (also known as “pre-pack”, to use the Anglo-Saxon expression) is initiated by filing a petition in which the debtor demonstrates that this method of reorganization will (1) facilitate the liquidation of the company whereby the highest possible payout to the joint creditors is achieved and (2) preserve employment as much as possible. The chambers will then consider this request within three working days. If the request is granted, the company court will appoint a provisional receiver and a provisional supervisory judge for a maximum period of thirty (30) days, extendable by up to 30 days. They will, in principle, also act as receiver and supervisory judge in the event the company is effectively declared bankrupt. During the proceedings no suspension is granted, and it remains possible for a creditor to still sue the company in bankruptcy. The enterprise itself may also still file for bankruptcy during the preparatory phase.

The provisional receiver represents the interests of the creditors and must examine the feasibility of the scheme proposed by the debtor. In doing so, he or she should check in particular whether a proposed business transfer would be made to related parties and, if that is the case, inform the provisional bankruptcy judge.

The advantage compared to traditional bankruptcy is that the debtor retains control which permits the debtor to prepare the transfer of part or all of assets or activities within a short period of time prior to the bankruptcy declaration. The transfer is only effective once the bankruptcy is declared. This procedure can maximize the proceeds available for the creditors by allowing the transfer of assets to take place on a going concern basis.

 

There are also other significant advantages of the Silent Bankruptcy procedure:

• Although it will be a point of focus for the supervision by the provisional receiver and the provisional supervisory judge, it is not excluded that a transfer may be made to a party “related” to the existing shareholders or directors.
• The chance that the agreed transfer is reversed at the request of the receiver in the bankruptcy is limited, since the preparation took place under his supervision and that of the supervisory judge. Because of the way the receiver’s fee is calculated, he also has an incentive to achieve an asset transfer that meets the conditions of the ‘pre-pack’ after his formal appointment.
• The Supreme Court, in a judgment of 19 January 2006, defined the concept of de facto liquidation, where the directors of a company actually proceed to liquidation in disregard of the rules of priority among creditors. The risk of liability for this is virtually eliminated by silent bankruptcy.
• The obligation to request and transfer tax and social security certificates to the transferee, under penalty of joint and several liability for the debts of the transferor, does not come into play in bankruptcy.

• Under Belgian law, where an economic entity is transferred to a new employer as a ‘going concern’ Collective Bargaining Agreement n° 32bis (CBA32bis) applies. But in a Silent bankruptcy the effects of CBA 32bis are limited; the transferee can freely choose whom to employ. Continuing employee’s seniority and any applicable sectorial CBAs will be transferred.

 

The silent bankruptcy procedure also brings certain new questions and concerns to the surface:

• Apart from a few high-profile cases, silent bankruptcy is currently proving unpopular. In the district of Flemish Brabant and Dutch-speaking Brussels, where the Dutch-speaking company courts of Brussels and Leuven have jurisdiction, only eight silent bankruptcies have been pronounced to date. Cases before French-speaking courts appear to be more frequent.
• There is no firm guarantee that the agreed transfer will be effectively carried out by the receiver after the bankruptcy judgment. Indeed, the receiver is not obliged to do so. A prudent liquidator who judges that the agreed transfer is sub-optimal may still consult the market and may possibly transfer the assets to a third-party.
• The supervising bankruptcy judge, who often has a business background, has considerable influence on the analysis of the price of the agreed transfer in practice notwithstanding his legally limited role.
• Finally, provisional receivers consider that their powers are too limited to adequately protect the interests of creditors. In addition, there is no clear mechanism for verification of the agreed transfer by a judicial authority which, in practice, is regulated on the basis of article XX.142 of the CEL governing the urgent transfer of assets subject to rapid depreciation.

Read More

The ‘enterprise mediator’ previously referred to in the Code of Economic Law is now referred to as a ‘reorganization practitioner’: but the ‘reorganization practitioner’ may still play a role as a mediator.

In a contribution from early 2023, we explained the distinction between an “accredited mediator” (médiateur agréé) appointed jointly by parties to resolve a particular dispute and an “enterprise mediator” (médiateur d’entreprises), who (at that time) was designated by Article XX.36 of the Code of Economic Law and appointed at the unilateral request of a company in difficulty.

Article XX.36 of the Code of Economic Law was repealed by Article 44 of the Law of 7 June 2023 which came into force on 1 September 2023. As we shall see below, the role of the company mediator is now taken on by a ‘reorganization practitioner’.

Reorganization practitioners have specific experience in insolvency law which makes them particularly valuable in the process of restructuring companies in difficulty, as provided for by Book XX of the Code of Economic Law. Strictly speaking, they are judicial representatives who, while contributing (subject to a minimum of formal constraints) to the recovery of a company in difficulty can, at the same time, bring about a resolution of individual disputes.

For example, a reorganization practitioner could act at the request of a franchisee who has a dispute with his franchisor, and at the same time is confronted with a revocation of his bank loans due to disappointing turnover figures and liquidity shortages. In this case, once appointed and strengthened by an “official/judicial” mandate, the enterprise mediator (now reorganization practitioner) will strive, respecting all confidentiality, to get everyone on the same page in the short term and can, hopefully, save the company from collapse. In that context they may approach the bank and other stakeholders, possibly including the staff, as well as suppliers and also make contact with the franchisor and mediate “classically” (as an accredited mediator does).

Appointment of an enterprise mediator (now reorganization practitioner) at a very early stage, (i.e. before resorting to private or collective judicial reorganization procedures), can be a very efficient preventive tool. However, this tool remains relatively unknown and unloved, despite the regular and active information campaigns of the courts, via social media, seminars and also via their website. (For an application to appoint a reorganization practitioner see the forms available (in FR and NL) from the Brussels Enterprise Court). (In Dutch a brochure about the appointment of a reorganization practitioner is available here .)

By an Act of 7 June 2023 implementing the Restructuring Directive (1), which entered into force on 1 September 2023, the Belgian legislator considered that the role of a “reorganization practitioner” (“praticien de la réorganisation”) defined in the Restructuring Directive should be included in the Code of Economic Law (Book XX).

The definition of a ‘reorganization practitioner’ as a legal representative appointed by the insolvency court and set forth in Book I, Chapter 14, Article I.23 7°/01 of the Code of Economic Law is almost identical to that included in the Directive.  In particular, the reorganization practitioner is to:

• assist the debtor or creditors in the preparation or negotiation of a reorganization plan;
• supervise the debtor’s activities during the negotiation of a reorganization plan, and report to the court;
• exercise partial control of the debtor’s assets or assets without dispossession, before or during the negotiations for a judicial reorganization.

As you may notice, this definition refers to tasks that were previously performed by ‘judicial representatives’ (“gerechtsmandatarissen” or “mandataires judiciaires” and before that by so called ‘commissioners for deferment [of debts]’ (“commissarissen inzake opschorting” or “commissaires au sursis”). They are all replaced by the reorganization practitioner.

Notably, however, the definition does not refer to another core task of the reorganization practitioner, namely his role as an enterprise mediator. Moreover, the definitions in the Code of Economic Law Book I, Chapter 14, might (wrongly) give the impression that enterprise mediation is no longer part of business reorganization … Until, that is, one comes across Section 3 of Book XX, Chapter 2 (Art. XX.29/2), which is entitled ‘Enterprise mediation’ (“Ondernemingsbemiddeling“ / “Médiation d’entreprise“ ).

Article XX.29/2 clarifies that at the request of the debtor, the Chamber for Enterprises in Difficulty can appoint a reorganization practitioner (read: enterprise mediator) to facilitate the recovery of the company. Furthermore, the article states that both the terms of the reorganization practitioner’s mediation tasks (… “sa mission de médiation” … “de opdracht van de bemiddeling”) and the reports of the reorganization practitioner (read: enterprise mediator) are confidential.

Finally, note that, apart from appointment on the basis of Article XX.29/2 of the Code of Economic Law, in certain urgent cases (where, for example, the Chamber for Enterprises in difficulty is unable to sit), the President of the Enterprise Court may make a provisional ruling on all applications falling within the competence of his/her Court, on the basis of Article 584 of the Judicial Code.

Conclusions: Due to the designation of ‘reorganization practitioners’ coupled with the deletion of the Article that explicitly referred to ‘enterprise mediators’ in the current Code of Economic Law: it will not be surprising if both companies and legal advisors have lost track of the continuing role for ‘enterprise mediation’ as it impacts companies in difficulty. Even if referred to by another name, the role of the enterprise mediator continues to exist, whether assisting as a restructuring expert in pre-insolvency tasks or, at a later stage, acting to assist the debtor with a reorganization plan, supervising business activities, including (on occasion) partial control of assets.

Accordingly, it would be preferable for the legislator, in recognition of the mediation tasks clearly assigned to the reorganization practitioner in Article XX.29/2 of the Code of Economic Law, to find room for a clearer reference to the qualities of an enterprise mediator that a reorganization practitioner needs to fulfil. One possibility might be to revise Art. XX.20/1. (Code of Economic Law, Book XX, Title I Chapter 14, Section 2) to recognize enterprise mediation as one of the capabilities that a reorganization practitioner needs to offer.

(1) Directive (EU) 2019/1023: Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency).

Read More

Are unilateral sanctions for breach of contract desirable in franchising?

Franchise networks are striving to multiply their successes, rather than their failures!

Nevertheless, difficulties can sometimes arise between a franchisor and franchisee.  Constructive solutions are urgently needed in such cases. Regarding constructive solutions, there is abundant literature on the need for effective communication and consultation between parties; and for mediation mechanisms both within and outside the franchise network.

In the event of contractual breach, and after Book 5 of the Civil Code having come into force (on January 1, 2023), parties to a franchise contract have a number of “unilateral sanctions” at their disposal.

The classic remedies (with one exception) are clearly listed in article 5.83 of the Civil Code, which states (our informal translation): ‘Unless otherwise agreed by the parties, the creditor has the following sanctions in the event of non-performance attributable to the debtor:

1° the right to performance in kind of the obligation ;

2° the right to compensation for damages;

3° the right to have the contract rescinded;

4° the right to reduce the price;

5° the right to suspend performance of the creditor’s own obligation’.

• The most obvious and undoubtedly fairest sanction is the exception for non-performance, the cornerstone of any two-sided (‘synallagmatic’) contract. If the franchisee fails to pay its invoices, the franchisor is entitled to suspend its services until payment is received, and vice versa.
• The right of a franchisee, who is dissatisfied with the franchisor’s services, to take legal action and claim a right to a price reduction (reduction of royalties, for example) also springs to mind. Moreover, the franchisee can apply such a reduction unilaterally by sending a written notification, provided that he or she justifies the reduction and ensures that it is proportional to the difference between the value of the service received and that agreed at the time the contract was concluded. If a franchisor fails to meet his marketing commitments, he may be obliged to reimburse the unspent budget to the franchisee.
• When a contractual breach worsens, either party retains the right to demand specific performance of the franchise agreement, or its termination, provided that the breach by the person who owes the obligation (the “obligor”) is “sufficiently serious”. Termination may result from (1) a court decision, (2) the application of an express resolutory clause, or (3) a notice sent by the obligee (to whom the obligation is owed) to the obligor. In the last two cases, immediate and unilateral action is possible without waiting for a court judgment, by sending a detailed letter for example. A franchisee who violates a non-competition clause is exposed to this severe sanction, as is a franchisor who is unable to supply its network notwithstanding its exclusive supply clause.
• In the event of termination of the franchise agreement, it goes without saying that the judge will also order compensation for damages suffered.

However, a more important question arises, which is whether these contractual sanctions (which can be combined as long as they are not contradictory), are really appropriate in the franchising context?

Is there a risk of irreversible unilateral decisions being taken too hastily, without waiting for review by a judge?

Certain limitations and restrictions exist that moderate the use of “unilateral sanctions”. A party must respect the specific conditions permitting use of unilateral sanctions (regarding termination, see art. 5.93 of the Civil Code) and must send a prior formal notice to the other party.

After a unilateral right has been exercised, an after the event (‘a posteriori’) judicial review remains possible, to verify that the right in question was not abused. Note that a notification by which an obligee invokes termination of a contract is ineffective if the conditions for termination (resolution/ beëindiging) are not fulfilled or if the termination is abusive (art. 5.94 of the Civil Code). Moreover, this article may lead to an exchange of termination notices between the parties, necessitating rapid judicial intervention.

CONCLUSION

The possibility for a disgruntled franchisee to unilaterally reduce royalties or withdraw could jeopardize the continuity of a franchise network, with detrimental effects on the entire network (both the franchisor and franchisees included). Therefore moderating, or even excluding some of these unilateral sanctions from the franchise contract may seem justified. A decision to do so should be motivated in a balanced way so as to remain within the limits of the ‘grey clauses’ provisions of article VI.91/5 of the Code of Economic Law and be in conformity with the requirements of article 5.73 of the Civil Code, which imposes the requirement of good faith in the performance of contracts and prohibits abuse of rights.

Read More

Information and Communications Technology (ICT): Making Public Money Work Harder

Friday, 9 September 2024

On 5 September the head of the UK’s National Audit Office (NAO), Gareth Davies, published an Insights article entitled ‘Here’s how to make public money work harder’. The article draws attention to the scale of the challenge the new government will face in reconciling its ambitions with a tough fiscal backdrop and suggests how NAO’s previous work could help.

The brief assessments that follow below (all drawn from public sources) reflect the budget and operational implications of the difficulties already inherent in certain UK National ICT Systems.

• Sub-postmasters’ problems caused by the Horizon retail and accounting system are widely reported. What is not so widely reported is that the existing contract with Fujitsu to run Horizon is due to conclude in March 2025. The aim was to have a replacement system, called New Business IT (NBIT), in place by that time. However, delays mean that Horizon is not likely to be fully shut down until 2030. (See Fujitsu set for further £180m deal as Post Office Horizon replacement delayed, Karl Flinders, Computer Weekly, 31 May 2024.)
  – More problematic are reports that the new platform being developed in-house by the Post Office (NBIT plus the wider project known as the Strategic Platform Modernisation Programme (SPMP)) was given a red warning rating after an Infrastructure and Projects Authority (IPA) review completed in April concluded that “successful delivery of the programmes to deliver the Horizon replacement to time, cost and quality appears to be unachievable”. (See Post Office Horizon replacement project labelled ‘unachievable’ as taxpayer bill reaches £1bn, Bryan Glick, Computer Weekly, May 30, 2024.)
• Concerning trade, the Single Trade Window (STW) (defined by the World Customs Organisation as: a “facility that allows parties involved in trade and transport to lodge standardised information and documents with a single entry point to fulfil all import, export, and transit-related regulatory requirements”) is a crucial part of delivering the new border target operating model (BTOM). In Part Three of its recent report ‘The UK border: Implementing an effective trade border’ the National Audit Office (NAO) assesses projects that are most relevant to delivering the new BTOM. Paragraphs 3.7 through 3.13 and Figure 10 (pp. 42-48) concern the STW.
  – In its conclusions NAO states: “In our view, the programme’s objectives and timescales are overly optimistic and continue to under‑estimate the complexity of what is required” … “The March 2024 business case estimates that a 12-month delay delivering the STW could reduce the benefits realised by £866 million over 10 years (from £2.77 billion) …”. In the IPA Annual report on Major Projects 2022-23 the STW project received an Amber rating (p.65). According to the key at Annex A, Amber means ‘Successful delivery appears feasible but significant issues already exist, requiring management attention. These appear resolvable at this stage and, if addressed promptly, should not present a cost/schedule overrun’.

• Five ICT systems with a red Delivery Confidence Assessment (DCA) are identified in Figure 7 of the IPA 2022-23 Report (p.17).
• It will be recalled that The National Programme for IT in the NHS (NPfIT) was a large public sector IT programme intended to bring the NHS’ use of information technology into the twenty first century. Launched in 2002 under Prime Minister Blair, it was cancelled by the Conservative-Liberal Democrat Government in 2011.
  – NAO’s report ‘Digital transformation in the NHS’ of May 2020 (paragraph 20) came to the conclusion about value for money that: “The Department and its arm’s-length bodies have ambitious plans for digital transformation, intended to enable many of the wider service changes set out in the NHS Long-Term Plan. However, the track record for digital transformation in the NHS has been poor, with the previous major national programme being closed early without achieving its objectives. Currently, £4.7 billion of national funding is delivering some national digital services and improving the digital maturity of some NHS trusts. However, the target of a ‘paperless’ NHS by 2018 has not been achieved”. [NHS Improvement] “now expects the NHS to reach a core level of digitisation by 2024, with important information routinely available to clinicians when and where they need it”.
  – The British Medical Association’s December 2022 report ‘Getting IT Right: A Prescription for Safe, Modern Healthcare’ found that more than 13.5 million hours of doctors’ time was being lost each year in England due to delays resulting from ‘inadequate or malfunctioning IT systems and equipment’ – the equivalent of almost 8,000 full time doctors, or nearly £1 billion.[1]

• Four NHS programmes with an Amber DCA are mentioned in the IPA 2022-23 Report. (Annex D: List of projects with DCA history pp.56-27.)
• Added to the complexities of managing large digital projects are the increased vulnerabilities of large IT systems to ransomware cyber-attacks. After the ransomware cyber-attack against Synnovis on Monday, 3 June, 2024, NHS England – London reported on the clinical impact in its 4 July update: “Some services, such as outpatient appointments, are now operating to similar levels to before the incident but there continues to be disruption to other services”. … “so far 4,913 acute outpatient appointments and 1,391 elective procedures and have been postponed at King’s College Hospital NHS Foundation Trust and Guy’s and St Thomas’ NHS Foundation Trust since 3 June”.

 

Frameworks for assessing digital change programmes: Concerning the challenges and risks of implementing digital change programmes the NAO has developed an NAO digital change framework. It examines programmes against six criteria:

-> understanding aims, ambition and risk;
-> engaging commercial partners;
-> approach to legacy systems and data;
-> using the right mix of capability;
-> choice of delivery method; and
-> effective funding mechanisms.

Internal and external digital experts are used, and fieldwork includes interviews, a technology demo and review of programme documents, including the delivery plans, contract with the delivery partner, and technical documentation.

(See NAO Report ‘The UK border: Implementing an effective trade border’, Appendix One at paragraph 23 concerning the assessment framework.)

 

Conclusions: a number of important ICT problems already exist that are capable of de-railing key government priorities concerning growth, trade and the NHS recovery. Early identification and the application of rigorous analysis techniques (such as the NAO’s digital change programme analysis) could help to avoid these problems becoming critical. In his article Gareth Davies says: ”I look forward to discussing our work with MPs – both newly elected and those returning to the House of Commons – in the coming weeks and months”.

***

[1] A competitive tender worth up to £1.5 billion for suppliers to provide a variety of IT hardware to the NHS was published on 27 August 2024 by NHS Shared Business Services Limited (NHS SBS) together with North of England NHS Commercial Procurement Collaborative (“NOE CPC”). The tender concerns a framework contract “Tech Devices – Link 4“. The framework agreement is expected to last four years. Potential bidders need to request participation by October 2 at 12:00pm.

 

Disclaimer: The brief summaries in this article may not deal with every important topic or cover all important aspects of the subject matter. It is not intended, and should not be used, as a substitute for seeking appropriate advice, including legal advice, on specific questions.

Read More