In the event of insolvency of the Developer for Aira Fitness, how are the assets applicable to the payment of claims of both the Franchisor and Guarantor distributed?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event of insolvency and consequent liquidation of the assets of Developer through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Developer applicable to the payment of the claims of both Franchisor and Guarantor shall be paid to Franchisor and shall be first applied by Franchisor to the amounts due to Franchisor from Developer.
Guarantor does hereby assign to Franchisor all claims which they may have or acquire against Developer or against any assignee or trustee in bankruptcy of Developer; provided however, that such assignment
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, in the event that the Developer becomes insolvent and its assets are liquidated through bankruptcy, assignment for the benefit of creditors, or voluntary liquidation, the assets applicable to the payment of claims of both Aira Fitness (the Franchisor) and the Guarantor will be paid to Aira Fitness first. Aira Fitness will then apply these assets to cover the amounts owed to them by the Developer.
This means that Aira Fitness has priority over the Guarantor in receiving payments from the Developer's assets during liquidation. The Guarantor's claim is expressly subordinated to Aira Fitness's claim, ensuring that Aira Fitness is made whole before the Guarantor receives any payment. This subordination is a significant protection for Aira Fitness, reducing their risk in the event of the Developer's financial distress.
Furthermore, the Guarantor assigns to Aira Fitness all claims they may have against the Developer or any assignee or trustee in bankruptcy. This assignment reinforces Aira Fitness's priority and control over the distribution of assets in an insolvency scenario. However, the document does not specify what happens to any remaining assets after Aira Fitness's claims are fully satisfied. A prospective franchisee should seek clarification from Aira Fitness regarding the distribution of any surplus assets after the franchisor's claims are settled.