Mandate

management

We have produced a multi-page thematic dossier on the theme of mandate management, if you wish to deepen your knowledge in this area, and we regularly devote articles on distribution contracts to this mode of organisation in distribution networks.

Mandate management is a contract by which a person, called an agent manager, is responsible for operating a business in the name and on behalf of a principal who owns it. More specifically, Article L. 146-1 of the Commercial Code defines the agent manager as:

– a natural or legal person;
– who manages a business;
– on behalf of a principal who remains the owner of the fund (a tenant-manager not being the owner of the fund he operates, he cannot entrust the said fund to a manager-agent) and continues to bear the risks related to this operation (whereas in the lease-management, it is the tenant-manager who assumes the operating risks;
– for a commission proportional to the turnover;
– under a contract that:

o establishes a mission, specifying, if necessary, the management and operating standards of the fund to be respected and the terms of the control that can be carried out by the principal;
o while leaving him/her free, within the framework thus outlined, to determine his/her working conditions, to hire staff and to substitute replacements in his/her activity, at his/her expense and under his/her responsibility.

Unlike lease-management, no condition for prior exploitation of the fund by the principal is required.

The principal is required to provide prior pre-contractual information to the agent manager. This information must be provided at least 10 days before the signing of the contract and include the information listed in Article D 146-2 of the Commercial Code. However, it is not to be confused with the pre-contractual information provided for in Article L.330-3 of the Commercial Code, in particular in that it does not include the submission of market statements but includes a presentation of the general conditions of management of the fund. The texts do not provide for any penalty in the event of non-compliance with this obligation. However, Article L. 146-2 of the Commercial Code specifies that it must allow the manager-agent to “make an informed commitment. On this basis, failure to comply with pre-contractual information obligations could, as in the context of the application of the Doubin Law, lead to the admission of a defect in consent that could justify the nullity of the contract.

The principal is required to reimburse the manager for the advances and expenses that the latter has made for the operation of the fund, provided that these expenses are not at fault and that they are justified. The principal must also compensate the manager for the losses it has suffered as a result of its management. In other words, the principal bears the risks of exploitation.

The mandate management mechanism is an interesting solution to entrust the operation of a fund to a third party, for example when the creation costs of the fund are significant, it may involve certain risks that should be anticipated. However, since it is a hybrid scheme that makes it possible to set a framework and give instructions to the managing agent for the execution of its mission, it presents risks of requalification into a commercial agent contract or an employment contract. There is also a risk of application of the status of branch manager provided for by Article L. 7321-2 of the Labour Code.

It is therefore necessary to be vigilant in the drafting of the mandate management contract, but also in the terms of its execution.