Under the Belocal franchise agreement, what constitutes insolvency that leads to automatic termination?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
10. DEFAULT AND TERMINATION
- A. Default and Termination. Franchisee acknowledges that each of Franchisee's obligations described in this Agreement is a material and essential obligation; that nonperformance of such obligations will adversely and substantially affect Franchisor and the System; and that the exercise by Franchisor of the rights and remedies set forth herein is appropriate and reasonable. Franchisee agrees to pay to Franchisor all liabilities, damages, costs, and expenses, including reasonable attorney's fees, incurred by Franchisor in connection with any default by Franchisee under this Agreement.
- 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, several conditions related to insolvency can lead to the automatic termination of the franchise agreement. These conditions provide Belocal with a mechanism to terminate the agreement without notice if the franchisee's financial stability is severely compromised.
Specifically, the franchise agreement will automatically terminate if the franchisee: becomes insolvent or makes a general assignment for the benefit of creditors; files a voluntary petition under federal bankruptcy law or similar statutes; faces an involuntary bankruptcy petition that is not dismissed within 60 days; admits in writing their inability to pay debts when due; is adjudicated bankrupt or insolvent; consents to the appointment of a receiver for their business or assets; has a receiver appointed by a court; institutes proceedings for composition with creditors; has a final judgment that remains unsatisfied for 30 days or longer (unless a supersedeas bond is filed); or is dissolved.
These stipulations are fairly standard in franchise agreements, as the franchisor needs to protect its brand and system from the negative impacts of a franchisee's financial distress. For a prospective Belocal franchisee, it's crucial to understand these conditions and maintain sound financial management to avoid triggering automatic termination. The franchisee should ensure they have sufficient capital and a robust business plan to meet their financial obligations and avoid situations that could lead to insolvency.