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In this article, I will discuss some of the laws and considerations pertaining to when a beer wholesaler is required to provide notice to its suppliers, and in some cases even required to obtain written consent from its beer suppliers, in the event of a sale or transfer of the wholesaler’s business. Transfers can take place in the traditional sense that may first come to mind, such as the sale from ABC WHOLESALER to XYZ WHOLESALER, where the two are entirely separate businesses and entities with entirely separate ownership structures, but transfers can come in all shapes and sizes, such as ABC WHOLESALER selling a minority or majority of its business (corporate stock, membership units, etc.) to an outside individual or entity. This article will use Tennessee law as a basis for illustrating the requirements and implications that must be considered by both supplier and wholesaler.
As an alcoholic beverage firm that represents suppliers (distilleries, breweries, brand owners) as well as wine, spirits and beer wholesaler/distributors, we often receive questions pertaining to supplier/wholesaler contracts and relationships. We hope that this article provides some insight into the applicable legal requirements and considerations pertaining to transfers of a wholesaler’s business and the rights and responsibilities of both suppliers and wholesalers.
WHEN SUPPLIER NOTICE AND CONSENT IS REQUIRED
Supplier consent is required under certain types of “transfers” of a wholesaler’s business. What constitutes a transfer under Tennessee law?
TCA 57-5-502
(10) “Transfer of wholesaler’s business” or “transfer of the wholesaler’s business” means the voluntary sale, assignment or other transfer of all or control of the business, or all or substantially all of the assets of the wholesaler, or all or control of the capital stock of the wholesaler, including without limitation the sale or other transfer of capital stock or assets bymerger, consolidation or dissolution, or of the capital stock of the parent corporation, or of the capital stock or beneficial ownership of any other entity owning or controlling the wholesaler; and
Tenn. Code Ann. § 57-5-502 (West)
In the event of a transfer, when is supplier notice and/or supplier consent required?
TCA 57-5-503
The following are prohibited under this part:
(1) A wholesaler shall not:
(A) Transfer the wholesaler’s business without giving the supplier written notice of the proposed transfer of the business as required by this part; or
(B) Transfer the wholesaler’s business without receiving the supplier’s written approval for the proposed transfer, where required by an agreement and consistent with this part.
Tenn. Code Ann. § 57-5-503 (West)
What does the agreement state (read your contract!)?
What is the timeline for notice? What if the transfer is within a family or due to an inheritance? When can a supplier withhold consent?
TCA 57-5-504
(a) A wholesaler shall give the supplier written notice of the wholesaler’s proposed transfer of the wholesaler’s business not less than thirty (30) days prior to the completion of the transfer, except in cases of transfer by inheritance, in which case the transferee shall give the supplier written notice of the transferee’s ownership interest within a reasonable time after the transfer is completed.
(b) A supplier’s consent shall not be required for any transfer of the wholesaler’s business to a designated member or for any transfer of less than control of the wholesaler’s business; however, a supplier’s written consent shall be required for any transfer of the wholesaler’s business to a person other than a designated member.
(c) Notwithstanding subsection (b), written consent from a supplier shall be required for any transfer of the wholesaler’s business to a designated member or other transferee if any of the following conditions apply:
(1) The transferee or any owner of the transferee has been convicted of a felony under the United States Code or the laws of any state which would adversely affect the good will or interests of the wholesaler or supplier;
(2) The transferee or any owner of the transferee has had a previous alcoholic beverage license revoked or suspended by the regulatory agency of the United States government or any state, whereby service was interrupted for more than ninety (90) days;
(3) The transferee or any owner of the transferee is insolvent or has filed any voluntary or involuntary petition under any bankruptcy or receivership laws, or has executed an assignment for the benefit of creditors; or
(4) The transferee or any owner of the transferee has had any previous agreement with the supplier involuntarily terminated, cancelled, discontinued or not renewed by the supplier for good cause.
(d) If the transferee is a designated member, a supplier shall not interfere with, prevent or unreasonably delay the transfer of the wholesaler’s business. An unreasonable delay is one that exceeds thirty (30) days after the intended date of transfer as set forth in the notice required by subsection (a).
(e) If the transferee is not a designated member, a supplier may not withhold consent or unreasonably interfere with or delay the transfer if the transferee meets reasonable standards and qualifications which are nondiscriminatory and material. An unreasonable delay is one that exceeds thirty (30) days after the receipt of all material information reasonably requested. The supplier shall have the burden of proving that the proposed transferee does not meet such standards and qualifications.
Tenn. Code Ann. § 57-5-504 (West)
What is a “Person”
(5) “Person” means any individual, partnership, corporation, association, syndicate, or any other combination of individuals;
Tenn. Code Ann. § 57-5-502 (West)
What is a “Designated Member”
(3) “Designated member” means:
(A) The spouse, child, grandchild, parent, brother or sister of a deceased individual who owned an interest in a wholesaler;
(B) Any person who inherits an ownership interest in a wholesaler;
(C) The appointed and qualified personal representative and the testamentary trustee of a deceased individual owning an interest in a wholesaler; or
(D) The person appointed by a court as the guardian or conservator of the property of an incapacitated individual owning an interest in a wholesaler;
Tenn. Code Ann. § 57-5-502 (West)
CONCLUSION
Does the contemplated merger constitute a transfer? If not, there is no notice and/or consent required. Even if supplier consent is required under 57-5-504, considering the facts/common underlying ownership of transferor and transferee, and the language of 57-5-504(e), it is possible that a supplier does not have the ability to withhold consent of the proposed transfer unless there is an agreement between the parties requiring otherwise. If a wholesaler is contemplating a transfer of its business or its assets, of any kind, or a supplier is notified by a wholesaler of a transfer, it is vital that each party fully understand its rights and responsibilities.
Last modified: May 3, 2021
