What constitutes 'substantially all' of a Bombs Away franchisee's property in the context of appointing a receiver or trustee?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
- (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 Bombs Away's 2024 Franchise Disclosure Document, the appointment of a receiver or trustee for 'all or substantially all' of a franchisee's property can trigger termination of the franchise agreement. Specifically, Bombs Away has the right to terminate the franchise agreement, without allowing the franchisee an opportunity to cure the issue, if a receiver or trustee is appointed by any court for the Business or all or substantially all of the franchisee's property.
Additionally, Bombs Away can terminate the agreement if the franchisee makes a general assignment for the benefit of creditors, is unable to pay debts as they become due, or experiences a levy or execution against the Business. An attachment or lien remaining on the Business for 30 days (unless contested in good faith), the filing of a bankruptcy petition by or against the franchisee (not dismissed within 45 days), or an adjudication of bankruptcy also constitute grounds for termination without a cure period.
While the FDD specifies that the appointment of a receiver or trustee for 'all or substantially all' of the franchisee's property can lead to termination, it does not explicitly define what 'substantially all' means in this context. This lack of a precise definition introduces some ambiguity. A prospective franchisee should seek clarification from Bombs Away regarding the specific criteria used to determine what constitutes 'substantially all' of their property. Understanding this threshold is crucial for assessing the risk of termination in the event of financial distress or legal action.
In general franchise agreements, the term "substantially all assets" is interpreted under state law, and is usually interpreted to mean a significant portion of the assets, such as those required to continue operating the business. Bombs Away franchisees should seek legal counsel to understand how this term would be interpreted in their specific jurisdiction.