Is there a cure period if the Benihana franchisee becomes insolvent?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee further agrees not to seek an injunctive order from any court in any jurisdiction relating to insolvency, reorganization, or arrangement proceedings that would have the effect of staying or avoiding this provision.
- 13.2.4 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 is no cure period for an act of default under this provision.
- 13.2.5 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.
Source: Item 23 — Receipts (FDD pages 74–576)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, if a franchisee becomes insolvent, there is no cure period. 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, Benihana can terminate the franchise agreement immediately without allowing the franchisee an opportunity to correct the situation.
This lack of a cure period is a significant risk for potential Benihana franchisees. Insolvency can arise from various factors, and the immediate termination of the franchise agreement could result in substantial financial losses for the franchisee. They would lose the right to operate the Benihana restaurant and could face additional penalties or obligations as outlined in the franchise agreement.
It is important to note that the FDD also states that the franchisee agrees not to seek an injunctive order from any court relating to insolvency proceedings that would prevent the termination. This further limits the franchisee's options in the event of insolvency. Prospective franchisees should carefully consider this provision and seek legal counsel to understand the full implications of insolvency under the Benihana franchise agreement.
In the event that a franchisee files for bankruptcy, Benihana can terminate the agreement without notice or a cure period, provided it is allowed by applicable law. The franchisee also consents to Benihana being granted relief from the automatic stay of proceedings against the franchisee.