In the event of the licensee's liquidation, winding up, or similar proceedings, what are the guarantor's obligations to Budget regarding claims against the licensee?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event of any liquidation, winding up or similar proceedings in respect of Licensee, the Guarantors will prove all their claims against Licensee in such proceedings and will hold upon trust for Budget the benefit of any such proof and/or monies (if any) received thereunder until all monies now or hereafter owing by Licensee under or by virtue of Licensee's obligations referred to in Paragraph 1 have been paid in full.
The Guarantors waive, in favor of Budget, all of their rights (whether against Budget, Licensee or any other person) to the extent necessary to give full effect to this Guarantee and will as and when required by Budget, sign or execute all such documents and perform all such things as may be reasonably required by Budget to give effect to this instrument or more satisfactorily assure to Budget any of Budget's rights hereunder.
Source: Item 23 — RECEIPTS (FDD pages 80–426)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, in the event of the licensee's liquidation, winding up, or similar proceedings, the guarantors must prove all their claims against the licensee in such proceedings. The guarantors are then obligated to hold in trust for Budget the benefit of any proof or monies received until all amounts owed by the licensee under the obligations outlined in Paragraph 1 are paid in full. This ensures that Budget's financial interests are prioritized during the licensee's liquidation process.
This provision protects Budget by ensuring that the guarantor's claims against the licensee are subordinated to Budget's claims. The guarantor cannot directly benefit from the liquidation until Budget has been fully compensated for all outstanding debts and obligations. This clause is designed to mitigate the risk of financial loss to Budget in the event of the licensee's financial distress.
Furthermore, the guarantor waives their rights against Budget, the licensee, or any other person to the extent necessary to give full effect to the guarantee. The guarantor must also sign or execute documents and perform actions reasonably required by Budget to assure Budget's rights under the guarantee. This ensures that Budget has the necessary legal and practical means to enforce the guarantee and recover any outstanding amounts.
This requirement is a significant obligation for the guarantor, as it potentially limits their ability to recover any investments or loans made to the licensee until Budget's claims are fully satisfied. Prospective franchisees should carefully consider the implications of this guarantee and seek legal counsel to fully understand their obligations and potential liabilities.