Does the collateral for Aunt Millies Bakeries include insurance proceeds?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
To secure the full and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of each of the Obligations (as hereafter defined), the Borrower hereby grants, conveys, assigns and transfers to Secured Party a security interest in and to the following personal property:
- a) any and all rights that the Borrower may have under the Distributor's Agreement between PERFECTION BAKERIES, INC., d/b/a AUNT MILLIE'S and Borrower;
- b) all equipment, inventory, accounts, goods, property, contract rights, chattel paper and general intangibles related to or arising from Borrower's business, whether now or hereafter existing or acquired and wherever located;
- c) any and all accessions, replacements and additions to or of the foregoing; and
- d) all cash or non-cash proceeds (including insurance proceeds) of the foregoing, the items described in a), b), c), and d) above being hereinafter collectively referred to as the "collateral".
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries' 2025 Franchise Disclosure Document, the collateral does include insurance proceeds. Specifically, the security interest granted to the Secured Party by the Borrower (the franchisee) extends to all cash or non-cash proceeds, including insurance proceeds, of the franchisee's rights under the Distributor's Agreement, equipment, inventory, accounts, goods, property, contract rights, chattel paper, and general intangibles related to the business. This collateral encompasses both existing and future assets, as well as any accessions, replacements, and additions.
This means that if an Aunt Millies Bakeries franchisee receives insurance money as a result of damage or loss to any of the secured property, those insurance proceeds become part of the collateral that Aunt Millies Bakeries can claim in the event of a default. This is a significant point for prospective franchisees to understand, as it affects their ability to use insurance payouts to recover from unforeseen events without first satisfying their obligations to Aunt Millies Bakeries.
This type of security agreement is fairly standard in franchising, as it protects the franchisor's investment and ensures that they have recourse in case the franchisee fails to meet their financial obligations. However, franchisees should be fully aware of the implications and understand that any insurance payouts related to the business's assets will likely be subject to the franchisor's claim.