Under what conditions related to bankruptcy filings can the Benihana Franchise Agreement be terminated without notice or a cure period?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
- 13.2.3 Franchisee files a petition or application seeking relief under any federal or state bankruptcy, insolvency or similar law, or a third party files a petition or application under any federal or state bankruptcy, insolvency or similar laws seeking to have Franchisee adjudicated a bankrupt, and the petition is not dismissed within ninety (90) days after it is filed.
Subject to, and to the fullest extent allowed by, applicable law, this Agreement will terminate without notice or cure period upon the occurrence of this act of default as if the date of filing were the expiration date, and Franchisee expressly consents to BNC being granted relief from the automatic stay of proceedings against Franchisee.
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.
Source: Item 23 — Receipts (FDD pages 74–576)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the franchise agreement can be terminated without notice or a cure period under specific bankruptcy-related conditions. If the franchisee files a petition seeking relief under any federal or state bankruptcy, insolvency, or similar law, it can trigger immediate termination. Similarly, if a third party files such a petition against the franchisee, and it is not dismissed within 90 days, Benihana can terminate the agreement without notice.
This provision means that a Benihana franchisee facing financial distress and considering bankruptcy needs to be aware of the immediate consequences for their franchise agreement. The agreement specifies that upon such a filing, the termination is automatic, as if the filing date were the expiration date of the agreement. The franchisee also consents to Benihana being granted relief from any automatic stay of proceedings against them, which could further complicate the franchisee's financial situation.
Furthermore, the franchisee agrees not to seek an injunction that would prevent this provision from taking effect during insolvency, reorganization, or arrangement proceedings. This clause underscores the importance of financial stability for Benihana franchisees and the potential risks associated with financial difficulties leading to bankruptcy. It is crucial for prospective franchisees to carefully consider their financial resources and business plan to mitigate the risk of such a situation arising and leading to the termination of their franchise agreement.