Does the Benihana franchise agreement allow for a cure period if the franchisee becomes insolvent?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
m any court in any jurisdiction relating to insolvency, reorganization or arrangement proceedings which would have the effect of staying or enjoining this provision.
- (d) Franchisee becomes insolvent, a receiver or custodian (permanent or temporary) of Franchisee's property or any part thereof is appointed by a court of competent authority, or Franchisee makes a general assignment for the benefit of creditors. There shall be no cure period for an act of default under this provision.
- (e) A final judgment against Franchisee remains unsatisfied of record for thirty (30) days or longer (unless a supersedeas or other appeal bond is filed), execution is levied against Franchisee's business or property at the Location, or a suit to foreclose any lien or mortgage against the Restaurant premises or any furniture, fixtures or equipment at the Restaurant is filed against Franchisee and not dismissed within thirty (30) days. The cure period for an act of default under this provision is five (5) days after notice by BNC following expiration of any other period set forth in the provision.
- (f) Franchisee defaults in the performance of any term, condition, or obligation of payment of any indebtedness to Franchisee's suppliers or others arising out of the purchase or lease of equipment in connection with the Restaurant.
- (g) Franchisee fails to pay when due any Royalties, Advertising Contributions, or other amounts due and payable to BNC under this Agreement. The cure period for an act of default under this provision is ten (10) days after notice by BNC.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, if a franchisee becomes insolvent, they do not have a cure period to remedy the default. The franchise agreement will be terminated. Specifically, if the franchisee becomes insolvent, has a receiver or custodian appointed for their property, or makes a general assignment for the benefit of creditors, it constitutes an act of default that triggers immediate termination without any opportunity to cure the situation.
This lack of a cure period in the event of insolvency is a significant risk for prospective Benihana franchisees. Insolvency can arise from various factors, including economic downturns, mismanagement, or unforeseen circumstances. Without a cure period, a franchisee facing financial difficulties could quickly lose their franchise rights, even if they believe the situation is temporary or rectifiable. This differs from some franchise systems that may provide a limited cure period to allow franchisees to address financial issues and potentially avoid termination.
Furthermore, the Benihana franchise agreement stipulates that franchisees waive any rights they may have under the provisions of the United States Bankruptcy Code and consent to the termination of the agreement. This waiver further limits the franchisee's options in the event of insolvency, as they cannot rely on bankruptcy protections to reorganize their business and preserve their franchise. The agreement also states that the franchisee agrees not to seek an injunctive order from any court in any jurisdiction relating to insolvency, reorganization, or arrangement proceedings which would have the effect of staying or enjoining this provision.
Prospective Benihana franchisees should carefully consider the implications of these provisions and seek legal counsel to fully understand their rights and obligations in the event of financial distress. It would be prudent to discuss with Benihana the possibility of negotiating alternative terms or seeking additional assurances to mitigate the risks associated with the lack of a cure period for insolvency.