The Civil and Commercial codes, Supreme Decree 549, Official Register (LA GACETA) No.: 22366 of 07 December 1977 govern the principal-distributor or agent relationship in Honduras. The Law is entitled "Law of Agents, Distributors and Representatives of National and Foreign Enterprises," which as often happens in other Central and South American countries, is very protectionist to the interests of the local (Honduran) distributor or agent. Please note that to take advantage of the provisions of the above Law, the distributor or agent must be registered as such before the Ministry of Industry and Commerce.
The main provisions established in the said Statute which benefit the local firms are:
A. The Distributor must be a Honduran Company (51% of the stock must rest in the hands of Honduran Citizens). If the distributor is not a Honduran company then it cannot register itself as a distributor of foreign firms and it would not be entitled to the protection of this Law.
B. The grantor cannot refuse to renew or unilaterally terminate the contract without a "JUST CAUSE." If it does, then it is subject to paying pecuniary compensations, which may be very high.
C. The parties cannot submit the resolution of their controversies to foreign tribunals. The alternate resolution of disputes and controversies arising from the contract is not contemplated also. Any stipulation to the contrary shall be considered as non-written.
Please further note that the Honduran Law does not allow the unilateral termination or refusal to renew an agreement of this type by the grantor without JUST CAUSE unless indemnification to the Distributor is awarded.
The "JUST CAUSES" within the above context are to mean the following:
1. The distributor's failure to live to the essential obligations of the contract;
2. Fraud or abuse of trust in the fulfilment of the agent's (distributor's) obligations; criminal responsibility may be derived from this where applicable;
3. Negligence of the agent/distributor resulting in the loss of market share;
4. Refusal by the distributor to provide reports and accounts or to exercise liquidation pertaining to the business within the time frame and fashion agreed upon;
5. Having divulged confidential industry information previously defined;
6. Bankruptcy, insolvency, failure to effect payments or any other legal disablement according to normal business practices;
7. Any action initiated by the distributor causing prejudice of business or sales pertaining thereto;
If the grantor fails to prove the "JUST CAUSES", listed above for termination of the agreement, then it may be forced to pay compensation to the distributor. Such compensation will be calculated according to the following:
1. All expenses made by the Licensee which cannot be recovered due to the modification, Refusal to renew or termination of the agreement;
2. The value of the investments made to the benefit of the grantor as long as the Agent or distributor is not able to use them, and in accordance to the depreciation tables that prevail for the payment of income tax in connection with machinery and "bona mobilia";
3. The value of the merchandise and spare parts in stock, when due to the modification, refusal to renew or termination of the contract, the distributor, agent or representative may not be able to use them;
4. The amount of the annual gross profits obtained by the distributor, agent or representative during the last five years of the distributorship, agency or representation agreement, and if the agreement is not that old; five times the amount of the annual gross profits of the number of years the agreement has been in force;
Foreigners exporting to Honduras are not required by law to sell through an agent or distributor, except when selling to the government. Please also note that foreign firms wishing to participate in foreign tenders are required to do so through a local authorized representative. Exporters of Pharmaceuticals, agro-chemicals, animal feeds and medicines are required to register their products before they can be sold in the Honduran marketplace. Pharmaceuticals and medicine-related products must be registered with the Ministry of Public Health. Agro-chemicals and animal feeds must be registered before the Ministry of Natural Resources.
It is always advisable to obtain local legal representation for assistance in the examination and review of these contracts. A written agreement often avoids later disputes and misunderstandings between the foreign firm and the local counterpart.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.