Is the Secured Party liable for the receiver's actions or omissions in the Aunt Millies Bakeries agreement?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
The following shall constitute a default by the Borrower:
- j) with respect to Borrower or a guarantor of Borrower's obligations hereunder: dissolution, insolvency, inability to pay debts as they mature, appointment of a receiver for any part of its/his/her property, assignment for the benefit of creditors, the commencement of any proceeding under any bankruptcy or insolvency laws, or other material adverse change in financial condition or means or ability to pay.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
Based on the 2025 Aunt Millies Bakeries Franchise Disclosure Document, the document does not explicitly address whether the Secured Party is liable for the actions or omissions of a receiver. However, the security agreement outlines conditions constituting default by the borrower and the remedies available to the secured party. These remedies include actions the secured party can take upon default, such as operating the business for the distributor's account after termination.
While the FDD details the distributor's responsibilities and potential defaults, it remains silent on the secured party's liability for a receiver's conduct. The agreement does specify events that trigger a default, such as the appointment of a receiver for any part of the borrower's property, but it does not clarify liability issues related to the receiver's actions.
A prospective Aunt Millies Bakeries franchisee should seek clarification from the franchisor regarding the potential liabilities of the secured party related to the actions or omissions of a receiver. Understanding this aspect is crucial for assessing the risks associated with the security agreement and the overall franchise investment.