In the Aunt Millies Bakeries agreement, can the Secured Party borrow on the security of the Collateral?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
Secured Party or the receiver may make any sale, lease or other disposition of the Collateral in the name of and on behalf of the Distributor or otherwise.
- (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)
Based on the 2025 Aunt Millies Bakeries Franchise Disclosure Document, the Secured Party has specific rights regarding the collateral, but the document does not explicitly state whether the Secured Party can borrow on the security of the collateral. The agreement outlines the conditions under which the Borrower (franchisee) would be in default, as well as the remedies available to the Secured Party upon such default. These remedies include the ability to take possession of and dispose of the collateral, applying the proceeds to the obligations secured by the agreement.
The FDD details the obligations of the borrower, including maintaining the collateral, paying obligations, and maintaining insurance. It also specifies events that constitute default, such as failure to pay, termination of the Distributor's Agreement, failure to maintain insurance, or any reduction in the value of the collateral due to the borrower's fault. Upon default, the Secured Party can exercise rights and remedies under the Uniform Commercial Code, take possession of the collateral, and dispose of it, applying the proceeds to the outstanding obligations.
The Secured Party can make any sale, lease, or other disposition of the Collateral in the name of and on behalf of the Distributor or otherwise. All proceeds of Collateral received by Secured Party or a receiver may be applied to discharge or satisfy any expenses, 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.
While the FDD describes how the Secured Party can handle the collateral in case of default, it does not address whether the Secured Party is allowed to borrow against the collateral. A prospective Aunt Millies Bakeries franchisee should seek clarification from the franchisor regarding the Secured Party's rights to borrow against the collateral to fully understand the implications of the security agreement.