For a Chatime franchise, what is the Guarantor required to do with any claim it has and any dividend it receives in the event of liquidation, bankruptcy, composition, arrangement, or assignment for the benefit of creditors, until the Franchisor has received all money payable?

According to Chatime's 2025 Franchise Disclosure Document, a Guarantor plays a specific role in the event of the Franchisee's financial distress. Until Chatime receives all money payable to it by the Franchisee, the Guarantor is obligated to adhere to specific conditions regarding any claims or dividends they might receive.

Specifically, the Guarantor is prohibited from making any claims in a liquidation, bankruptcy, composition, arrangement, or assignment for the benefit of creditors. Furthermore, the Guarantor must hold any claim they have and any dividend they receive on trust for Chatime. This means the Guarantor cannot personally benefit from these claims or dividends; instead, they must hold them for the benefit of Chatime until all outstanding debts are settled.

This provision protects Chatime's financial interests by ensuring that the franchisor's claims take precedence over those of the Guarantor in the event of the Franchisee's financial difficulties. It is a fairly standard practice in franchising to have such safeguards in place, as it mitigates the risk to the franchisor's revenue streams. Prospective franchisees should carefully consider the implications of this clause and the financial responsibilities it places on the Guarantor.