What are the consequences if Belocal becomes insolvent?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
- B. Automatic Termination. Franchisee shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee if:
- (1) Franchisee becomes insolvent or makes a general assignment for the benefit of creditors;
- (2) Franchisee files a voluntary petition under any section or chapter of federal bankruptcy law or under any similar law or statute of the United States or any state thereof;
- (3) an involuntary petition is filed with respect to Franchisee under any such laws and is not dismissed within 60 days after it is filed;
- (4) Franchisee admits in writing its inability to pay its debts when due;
- (5) Franchisee is adjudicated as bankrupt or insolvent in proceedings filed against Franchisee under any section or chapter of federal bankruptcy laws or under any similar law or statute of the United States or any state;
- (6) a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee;
- (7) a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction;
(8) proceedings for a composition with creditors under any state or federal law should be instituted by or against Franchisee;
(9) a final judgment remains unsatisfied or of record for 30 days or longer (unless supersedeas bond is filed);
(10) Franchisee is dissolved;
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, if the franchisee becomes insolvent, it constitutes a default under the Franchise Agreement, leading to automatic termination without notice. Specifically, the agreement states that the franchisee will be considered in default, and all rights granted in the agreement will automatically terminate if the franchisee becomes insolvent.
This automatic termination also occurs if the franchisee makes a general assignment for the benefit of creditors, files a voluntary petition under federal bankruptcy law, admits in writing their inability to pay debts, is adjudicated bankrupt or insolvent, consents to the appointment of a receiver, or has a receiver appointed for their assets. Additionally, the same outcome applies if proceedings for a composition with creditors are instituted or if the franchisee is dissolved.
This clause is a significant risk for prospective Belocal franchisees. In the event of financial distress leading to insolvency, the franchisee immediately loses all rights to operate the franchise, with no opportunity to remedy the situation. This is a stricter condition than many franchise agreements, which often provide a notice and cure period for defaults.
Prospective franchisees should carefully consider the financial risks associated with operating a Belocal franchise and ensure they have sufficient capital and a robust business plan to avoid insolvency. Understanding the conditions that trigger automatic termination is crucial for managing the franchise and mitigating potential losses.