Terminating a distribution agreement

There are many reasons why you may wish to terminate your agreement with a distributor. Maybe they have failed to comply with their performance obligations, or perhaps they are in financial difficulty. Maybe you are no longer happy to give them exclusivity in respect of your product(s).

A good distribution agreement will make express provision for the circumstances in which the agreement can be terminated, the process that needs to be followed and the consequences that will flow from it. Agreements covering arrangements that are only intended to last for a specified period should provide for termination to occur automatically at the end of that period. Agreements covering arrangements that are intended to run until terminated by either party should provide for termination to occur on the giving of notice. Provision should also be included for the agreement to end if either party commits a fundamental breach of contract or becomes insolvent.

The terms of any termination provisions should be fully complied with and any requirements for notice or adherence to time limits carefully followed.

Unlike the termination of a commercial agency agreement, there is no automatic right to a compensation payment when a distribution agreement ends, but there are circumstances in which money may become payable if things are not done properly. For example, if the agreement is terminated without notice in circumstances where notice should have been given. A well-drafted agreement should cater for this but too often businesses rely on informal arrangements which mean that these issues are not addressed and so chaos ensues when things go wrong.

Specialist advice at the time the distribution agreement is made, and again when it is terminated, can help ensure your business needs are met and your interests protected.

The commercial law team at Myers & Co Solicitors in Stoke-on-Trent, Staffordshire, has a reputation for providing a first-class service to businesses and in dealing with complex commercial arrangements in a practical, effective and efficient manner.

We have a wealth of experience in drafting both agency and distribution agreements and in helping to unravel commercial relationships when they come to an end. For further advice, contact us on 01782 577000.