What constitutes a 'general assignment for the benefit of Franchisee's creditors' for a Bombs Away franchise?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
- (c) Without Cure Period. Bombs Away Franchising may terminate this Agreement by giving notice to Franchisee, without opportunity to cure, if any of the following occur:
- (iii) a receiver or trustee for the Business or all or substantially all of Franchisee's property is appointed by any court, or Franchisee makes a general assignment for the benefit of Franchisee's creditors, or Franchisee is unable to pay its debts as they become due, or a levy or execution is made against the Business, or an attachment or lien remains on the Business for 30 days unless the attachment or lien is being duly contested in good faith by Franchisee, or a petition in bankruptcy is filed by Franchisee, or such a petition is filed against or consented to by Franchisee and the petition is not dismissed within 45 days, or Franchisee is adjudicated as bankrupt;
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to the 2024 Bombs Away Franchise Disclosure Document, a 'general assignment for the benefit of Franchisee's creditors' is specifically listed as an event that allows Bombs Away to terminate the franchise agreement without offering the franchisee an opportunity to cure the issue.
This means that if a Bombs Away franchisee makes a general assignment for the benefit of their creditors, Bombs Away has the right to immediately terminate the franchise agreement. This is a significant risk for franchisees, as it means that financial distress leading to such an assignment can result in the immediate loss of the franchise. The FDD also lists other conditions that would allow Bombs Away to terminate the agreement without a cure period, including misrepresentation or omission of material facts in the franchise application, submission of false reports, appointment of a receiver or trustee for the business, inability to pay debts, a levy or execution against the business, or filing for bankruptcy.
This clause is relatively standard in franchise agreements, as franchisors want to protect their brand and system from franchisees who are in severe financial distress. Prospective franchisees should carefully consider the implications of this clause and ensure they have a solid financial plan in place to avoid such a situation. It is advisable to seek legal counsel to fully understand the ramifications of this and other termination clauses within the franchise agreement.