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At the end of a distribution or license agreement, the big question is: what happens to the remaining stock? Are you allowed to sell it, must you return it, or destroy it? Without clear agreements, this leads to disputes and legal conflicts — and the court may even impose a transitional period that you had not foreseen. Below, you can read how to arrange this properly.
What is the problem with the remaining stock?
A distribution or license agreement grants the distributor or licensee the right to sell products or services of the producer (or licensor) within a specific region or market. If that agreement ends, a substantial stock may remain: the residual stock.
That inventory presents a dilemma. For the distributor, it is a potential source of income, but for the producer, it can cause problems — for example, if the products are sold at dumping prices, which harms the brand or other distributors.
What agreements can you make regarding remaining stock?
To prevent damage to the brand and other distributors, parties often make agreements in the contract regarding what happens to remaining stock after termination. Common solutions:
- Buyback: the supplier purchases the remaining stock at a predetermined price (for example, the historical purchase price plus a percentage-based expense reimbursement);
- Run-off period: the distributor may continue selling the stock for a certain period, possibly with rules regarding promotions and sales prices;
- Destruction: the distributor must destroy the stock, whereby the agreement prescribes how he provides proof thereof.
What if there are no agreements? An example
If agreements are lacking, conflicts quickly arise. An example is a dispute between an American manufacturer of hair care products and its former European distributor (ECLI:NL:GHSHE:2021:3084). The case concerned, among other things, the use of the distributor's trade name and address on the products after the termination of the agreement. This led to proceedings in which the court imposed a transitional period — even though this was not stipulated in the agreement.
The lesson: without agreements, the judge decides based on all circumstances, with uncertain and sometimes unforeseen outcomes — such as a mandatory transitional period.
Frequently Asked Questions
Am I allowed to sell my remaining stock after the end of the agreement?
Only if this has been agreed (for example, via a transitional period). If there is no arrangement, the judge may determine what is permitted.
Can the producer be required to buy back the remaining stock?
Only if agreed upon. A buy-back arrangement at a predetermined price prevents disputes afterwards.
What happens without agreements regarding remaining stock?
The judge then decides based on all the circumstances. This can lead to uncertainty, such as an imposed transitional period, as in the case mentioned.
Do I have to destroy the remaining stock?
Only if agreed upon. The agreement may prescribe how you provide proof of destruction.
Avoid surprises: have your agreement drafted
Clear agreements regarding residual stock prevent conflicts and protect the interests of all parties. Have your distribution agreement drafted by a specialist so that you do not face unpleasant surprises at the end.
View our expertise in distribution law or schedule a no-obligation intake meeting.
