Under what condition related to bankruptcy might the Bang Cookies Franchise Agreement's termination provision be unenforceable?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
his Agreement will be for a term (the" Term") that commences as of the Effective Date and, unless earlier terminated by Franchisor, will automatically end on the earlier of (a) the last day of the calendar month that the final Development Shop is required to be opened and operating under the Development Schedule, (b) the day the final Shop is open, or (c) the date of termination of this Agreement pursuant to the terms of this Agreement. Upon expiration or termination of this Agreement for any reason, Franchisee will not have any rights within the Development Area other than territorial rights that may have been granted to Franchisee and maintained by Franchisee pursuant to the terms of any and/or each respective Franchise Agreement. The Term may not be renewed or extended.
3.2 TERMINATION BY FRANCHISOR
Franchisor possesses the right, at Franchisor's option, to terminate this Agreement and all rights granted to Franchisee hereunder, without affording Franchisee with any opportunity to cure such default, effective upon written notice to Franchisee, or automatically upon the occurrence of any of the following events: (a) if Franchisee Abandons Franchisee's obligations under this Agreement; (b) if Franchisee for four consecutive months, or any shorter period that indicates an intent by Franchisee to discontinue Franchisee's development of Shops within the Development Area; (c) if Franchisee becomes insolvent or is adjudicated bankrupt, or if any action is taken by Franchisee, or by others against the Franchisee, under any insolvency, bankruptcy or reorganization act, or if Franchisee makes an assignment for the benefit or creditors or a receiver is appointed by the Franchisee; (d) if Franchisee fails to meet its development obligations under the Development Schedule for any single Development Period including, but not limited to, Franchisee's failure to establish, open and/or maintain the cumulative number of Bang Cookies Shops in accordance with Development Schedule; and/or (e) in the event that any one Franchise Agreement is terminated respecting any Development Shop and/or any other Franchise Agreement between Franchisor and Franchisee.
Source: Item 23 — RECEIPTS (FDD pages 56–245)
What This Means (2024 FDD)
According to Bang Cookies's 2024 Franchise Disclosure Document, the franchisor has the right to terminate the agreement if the franchisee becomes insolvent or is adjudicated bankrupt. Specifically, if any action is taken by the franchisee, or by others against the franchisee, under any insolvency, bankruptcy, or reorganization act, Bang Cookies can terminate the agreement. This also applies if the franchisee makes an assignment for the benefit of creditors or a receiver is appointed.
However, the Michigan FDD Amendment states that the State of Michigan prohibits certain unfair provisions that are sometimes in franchise documents. If any of the listed provisions are in these franchise documents, the provisions are void and cannot be enforced against you.
Therefore, if the Bang Cookies franchise is located in Michigan, the termination provision related to bankruptcy may be unenforceable. This is because Michigan law requires "good cause" for termination, which includes the franchisee's failure to comply with the Franchise Agreement and failure to cure the issue after written notice and a reasonable opportunity to do so (no more than 30 days). Bankruptcy itself might not automatically qualify as "good cause" under Michigan law without an opportunity to cure, making the termination provision potentially unenforceable in that state.