In the event of the Developer's insolvency, how are the Developer's assets applied to the claims of Buona and the Guarantor?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event of insolvency and consequent liquidation of the assets of Developer through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Developer applicable to the payment of the claims of both Franchisor and Guarantor shall be paid to Franchisor and shall be first applied by Franchisor to the amounts due to Franchisor from Developer.
Guarantor does hereby assign to Franchisor all claims which they may have or acquire against Developer or against any assignee or trustee in bankruptcy of Developer; provided however, that such assignment shall be effective only for the purpose of assuring to Franchisor full payment of all amounts due under the Franchise Agreement.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, in the event of the Developer's insolvency and subsequent liquidation of assets, the assets applicable to the claims of both Buona and the Guarantor will be paid to Buona. Buona will then apply these assets first to cover the amounts owed to them by the Developer. This clause is designed to protect Buona's financial interests in case the Developer faces financial difficulties.
This means that Buona prioritizes its claims over those of the Guarantor in the event of the Developer's insolvency. The Guarantor's claims are subordinated to ensure Buona receives payment for outstanding debts before the Guarantor can recover any funds. This subordination is a common practice in franchising to provide financial security to the franchisor.
Furthermore, the Guarantor assigns to Buona all claims they may have against the Developer or any assignee or trustee in bankruptcy. This assignment is specifically to ensure Buona receives full payment of all amounts due under the Franchise Agreement. This provides Buona with an additional layer of financial protection, allowing them to pursue all available avenues for recovering debts owed by the Developer in an insolvency situation.