What happens if a petition is filed seeking to have an Aw franchisee adjudicated insolvent?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
This Agreement will expire automatically without notice upon the presentation for filing by you (or any of your Owners) of a petition or application seeking any type of relief under the Federal Bankruptcy Act or any state insolvency or similar law. (Upon presentation for filing of such a petition or application, the term of this Agreement will be deemed to be amended so that the expiration of this Agreement occurs at the moment said petition or application is presented to a court official for stamping and filing.) This Agreement will also terminate automatically without notice if someone files a petition or application seeking to have you (or any of your Owners) adjudicated a bankrupt or insolvent, or seeking other relief against you (or any of your Owners) under the Bankruptcy Act or any state insolvency or similar law and the petition or application is not dismissed within sixty (60) days after it is filed. In that event, the term of this Agreement will be deemed to be amended so that it expires on the 60th day after filing. You (and your Owners) expressly and knowingly waive any rights you may have under the provisions of the Federal Bankruptcy Rules, and consent to the termination or expiration of this Agreement, or any other relief which we may seek in a complaint to lift the provisions of any automatic stay under any bankruptcy rules. In addition, you (and your Owners) agree not to seek any injunctive relief from any court in any jurisdiction which would have the effect of staying or enjoining this provision.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, if a petition or application is filed seeking to have an Aw franchisee (or any of their owners) adjudicated bankrupt or insolvent, or seeking other relief under the Bankruptcy Act or any state insolvency law, the franchise agreement will automatically terminate without notice if the petition is not dismissed within 60 days after filing. In such an event, the term of the agreement is deemed to expire on the 60th day after the filing date.
Furthermore, the franchisee and their owners expressly waive any rights they may have under the Federal Bankruptcy Rules and consent to the termination or expiration of the agreement. They also consent to any other relief that Aw may seek to lift the provisions of any automatic stay under bankruptcy rules. The franchisee and their owners also agree not to seek any injunctive relief from any court that would stay or enjoin this provision.
This clause is a significant consideration for prospective Aw franchisees, as it means that the franchise agreement can be terminated if the franchisee faces insolvency, even if they are actively trying to resolve their financial issues through bankruptcy proceedings. The franchisee also gives up certain rights and protections normally afforded under bankruptcy law, potentially limiting their ability to reorganize or protect their assets. This is not uncommon in franchising, as franchisors want to protect their brand and system from the negative impacts of a franchisee's financial distress.