How does the secured party apply proceeds from the disposition of collateral under the All Team agreement?
All_Team Franchise · 2025 FDDAnswer from 2025 FDD Document
Secured Party may apply any proceeds from a disposition of any of the Collateral toward payment of such of the Liabilities and in such order of application as Secured Party elects in its sole discretion, and Debtor is liable to Secured Party for any deficiency between the proceeds realized upon any disposition of the Collateral and the amount of Liabilities remaining unpaid.
Source: Item 22 — CONTRACTS (FDD pages 33–34)
What This Means (2025 FDD)
According to All Team's 2025 Franchise Disclosure Document, the secured party has considerable discretion in applying proceeds from the disposition of collateral. The secured party can apply these proceeds toward the liabilities in whatever order it deems appropriate. This means All Team has the power to decide which debts are paid off first from the sale of the franchisee's assets used as collateral.
Furthermore, the franchisee, as the debtor, remains liable for any deficiency. If the proceeds from the collateral's disposition do not cover the full amount of the outstanding liabilities, the franchisee is responsible for paying the remaining balance. This could create a significant financial burden for the franchisee if the collateral depreciates in value or is sold for less than the outstanding debt.
This arrangement is generally favorable to All Team, the secured party, as it provides flexibility in managing debt recovery and ensures the franchisee remains responsible for any shortfall. Prospective franchisees should carefully consider this clause and understand the potential financial risks associated with the disposition of collateral and the order in which All Team can apply the proceeds.