In the Aunt Millies Bakeries agreement, what happens to the proceeds of collateral after expenses and liabilities are covered?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
- (e) All proceeds of Collateral received by Secured Party or a receiver may be applied to discharge or satisfy any expenses (including among other things the receiver's remuneration and other expense of enforcing Secured Party's rights under this Agreement), charges, borrowing (including the Lender Loan if any), taxes and other expenses affecting the Collateral or which are considered advisable by Secured Party or the receiver to preserve, repair, process, maintain or enhance the Collateral or prepare it for sale, lease or other disposition, or to keep in good standing any charges on the Collateral ranking in priority to any charge created by this Agreement, or to sell, lease or otherwise dispose of the Collateral, all as may be determined by Secured Party in its sole discretion.
The balance of such proceeds will be applied to the liabilities in such manner and at such time as Secured Party considers appropriate and thereafter will be accounted for as required by law.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, after the Secured Party or a receiver disposes of collateral, the proceeds are first applied to cover expenses. These expenses include the receiver's remuneration, costs of enforcing the Secured Party's rights, charges, borrowings (including the Lender Loan if any), taxes, and other expenses related to preserving, repairing, processing, maintaining, or enhancing the collateral, or preparing it for sale, lease, or other disposition. The Secured Party has sole discretion in determining these applications.
Following the payment of these expenses, the remaining balance of the proceeds is applied to the franchisee's liabilities in a manner and at a time that the Secured Party deems appropriate. The FDD states that after these liabilities are addressed, the remaining funds will be accounted for as required by law.
This means that a franchisee of Aunt Millies Bakeries can expect that in the event of default and subsequent liquidation of collateral, the proceeds will first cover the costs associated with the liquidation and any expenses to maintain the collateral, then be applied to outstanding debts. Any remaining balance after these obligations are met will be accounted for as required by law, implying it would be returned to the franchisee, although the exact process is not detailed.