What happens to the Buona franchise if a petition in bankruptcy is filed against the franchisee and not opposed?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee shall become insolvent or make a general assignment for the benefit of creditors; if a petition in bankruptcy is filed by Franchisee or such a petition is filed against Franchisee and not opposed by Franchisee; if Franchisee is adjudicated bankrupt or insolvent; if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction; if proceedings for a composition with creditors under applicable law of any jurisdiction should be instituted by Franchisee or against Franchisee and not opposed by Franchisee; if a final judgment remains unsatisfied or of record for thirty (30) days or longer (unless a supersedeas bond is filed); if Franchisee is dissolved; if execution is levied against Franchisee's property or business; if suit to foreclose any lien or mortgage against the premises or equipment of the Franchised Business is instituted against Franchisee and not dismissed within thirty (30) days; or if the real or personal property of the Franchised Business shall be sold after levy thereon by any sheriff, marshal or constable.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, if a petition in bankruptcy is filed against a Buona franchisee and the franchisee does not oppose it, Buona can terminate the franchise agreement without notice. This is considered a default under the agreement, leading to an automatic termination of all rights granted to the franchisee.
This means that the franchisee immediately loses the right to operate the Buona franchise. The franchisee also loses any opportunity to fix the situation. This is a significant risk for franchisees, as it means that financial difficulties leading to bankruptcy can result in the immediate loss of their business.
However, the FDD also states that termination upon bankruptcy of the franchisee may not be enforceable under federal bankruptcy law. This suggests that while Buona's franchise agreement stipulates immediate termination, federal law might provide some protection to the franchisee in bankruptcy proceedings. Prospective franchisees should seek legal counsel to understand their rights and obligations under both the franchise agreement and federal bankruptcy law.