Is a Bhc franchisee's bankruptcy or insolvency considered a non-curable default under the Multi-Unit Master Franchise Agreement?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
| Provision | Section in | Summary |
|---|---|---|
| Multi-Unit Master Franchise Agreement | (if the amount in controversy is less than $250,000 - https://www.jamsadr.com/rules-streamlined- arbitration/) or its Comprehensive Arbitration Rules and Procedures (if the amount in controversy is $250,000 or more - https://www.jamsadr.com/rules- comprehensive-arbitration/). Or, if the parties mutually agree, the dispute may be submitted to arbitration conducted by and before another mutually acceptable arbitrator. | |
| w. Choice of forum | 14.1, 14.2 | Mediation and arbitration proceedings will take place in Los Angeles County, California. Any litigation proceedings will take place in an appropriate court in California. |
| x. Choice of law | 16.13 | California law governs the arbitration of disputes under the MFA. |
| Provision | Section in Multi-Unit Master Franchise Agreement | Summary Restaurants in the Development Area under the Development Schedule. |
| e. Termination by franchisor without cause | 13.1 | We can terminate the MFA if you are in breach of that agreement (This provision is subject to state law.) |
| f. Termination by franchisor with cause | 13.2 | We can terminate the MFA if you are in material breach of that agreement (This provision is subject to state law.) |
| g. "Cause" defined – curable defaults | 13.1 | You have 30 days after notice to cure monetary defaults and other defaults (including defaults under a lease for your Master Franchise BHC Restaurants) that can be cured. (This provision is subject to state law.) |
| h. "Cause" defined – non-curable defaults | 13.2 | Non-curable defaults: your bankruptcy or insolvency; your abandonment of the franchised business; you make material misrepresentations relating to your acquisition of the Franchise or you engage in conduct that reflects materially and unfavorably upon the operation and reputation of the Master Franchised Business or the BHC System; you and us agree in writing to terminate the Franchise; you fail, for a period of 10 days after notification of noncompliance, to comply with any federal, state or local law or regulation applicable to the operation of the Franchise; after curing any default, you engage in the same noncompliance whether or not such noncompliance is corrected after notice; you repeatedly fail to comply with one or more material requirements of the MFA, whether or not corrected after notice; the Franchised Business or your Master Franchise BHC Restaurant is seized, taken over, or foreclosed by a government official, creditor, lien holder or lessor, or that a final judgment against you remains unsatisfied for 30 days; you are convicted of a felony or any other criminal misconduct that is relevant to the operation of the Franchise; an audit or investigation conducted by us reveals that you knowingly maintained false books or records; or submitted false reports to us, or knowingly understated your Gross Revenue or withheld the reporting of any of your Gross Revenue (see further information in Section 13.2(a)(x)); we make a reasonable determination that your continued operation |
Source: Item 17 — Renewal, Termination, Transfer, And Dispute Resolution (FDD pages 43–49)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, a franchisee's bankruptcy or insolvency is considered a non-curable default under the Multi-Unit Master Franchise Agreement (MFA). This means that if a Bhc franchisee declares bankruptcy or becomes insolvent, Bhc has grounds to terminate the MFA without providing an opportunity for the franchisee to rectify the situation. This is a significant point for prospective franchisees to consider, as it highlights the financial risks associated with the franchise.
Non-curable defaults, as outlined in the FDD, also include scenarios such as abandonment of the franchised business, material misrepresentations during the franchise acquisition, or engaging in conduct that negatively impacts the brand's reputation. Additionally, failure to comply with federal, state, or local laws, repeated non-compliance with the MFA, and seizure of the business by a government entity or creditor also constitute non-curable defaults.
The inclusion of bankruptcy or insolvency as a non-curable default is a fairly standard practice in franchising. It protects Bhc from the potential financial and reputational damage that could arise from a franchisee's severe financial distress. However, it also places a considerable burden on the franchisee to maintain financial stability and adhere to all legal and contractual obligations.
Prospective Bhc franchisees should carefully evaluate their financial resources and business acumen to mitigate the risk of facing such a default. Understanding the full scope of non-curable defaults and their potential consequences is crucial for making an informed decision about investing in a Bhc franchise.