How might federal bankruptcy law affect the enforceability of termination provisions in the Anago Subfranchise Rights Agreement?
Anago Franchise · 2025 FDDAnswer from 2025 FDD Document
t individual in a corporate, partnership or limited liability company Unit Franchisee (or in any owner of the Unit Franchisee) or in this Agreement are required to be transferred within 6 months of the death to an approved transferee in accordance with the terms of this ARTICLE.
ARTICLE 11 - DEFAULT AND TERMINATION
SECTION 11.1 TERMINATION BY YOU.
You do not have the right to terminate the Agreement prior to its expiration without written consent from Us.
SECTION 11.2 TERMINATION BY US - WITHOUT NOTICE.
- (a) Subject to applicable law, this Agreement automatically terminates without notice or opportunity to cure on the date of the occurrence of any of the following Events of Default:
- (i) if You damage the Anago System through violation of federal, state or local environmental laws;
- (ii) if You become insolvent or make a general assignment for the benefit of creditors;
- (iii) You file a petition in bankruptcy or a petition is filed against or consented to by You and the petition is not dismissed within 45 days;
- (iv) You are adjudicated as bankrupt;
- (v) a bill in equity or other proceeding for the appointment of a receiver or other custodian for Your business or assets is filed or consented to by You;
- (vi) a receiver or other custodian (permanent or temporary) of Your business or assets is appointed by any court of competent jurisdiction;
- (vii) proceedings for a composition with creditors under federal or any state law is begun by or against You;
- (viii) a final judgment in excess of $5,000 remains unsatisfied or of record for 30 days or longer (unless a supersedes bond is filed);
Source: Item 23 — RECEIPTS (FDD pages 62–298)
What This Means (2025 FDD)
According to Anago's 2025 Franchise Disclosure Document, several provisions within the Subfranchise Rights Agreement address the impact of federal bankruptcy law on termination. Specifically, Anago can terminate the agreement without notice if the franchisee files for bankruptcy, becomes insolvent, makes an assignment for the benefit of creditors, or has a receiver appointed for their business. These clauses are designed to protect Anago's interests in cases where the franchisee's financial stability is severely compromised.
However, the enforceability of these termination provisions can be affected by the U.S. Bankruptcy Code. Under bankruptcy law, certain clauses that allow termination of a contract solely because of a bankruptcy filing (known as "ipso facto" clauses) may not be enforceable. A bankruptcy court has the power to reject or assume contracts, which could prevent Anago from immediately terminating the agreement. The court will consider whether the continued operation of the franchise under bankruptcy protection would benefit the franchisee's estate and creditors.
Furthermore, the Guaranty signed by related parties includes provisions addressing bankruptcy. The guarantor's obligations become immediately due and payable at Anago's option if a bankruptcy proceeding is initiated by or against the guarantor. The guarantor's liability is construed as an absolute, unconditional, continuing, and unlimited obligation, regardless of whether any obligation is limited, modified, voided, released, or discharged in a bankruptcy proceeding. This aims to ensure that Anago's financial interests are protected even if the franchisee or a guarantor enters bankruptcy. Prospective franchisees should be aware of these clauses and understand the potential implications of bankruptcy on their Anago Subfranchise Rights Agreement and related guarantees.