Is a Chatime franchisee allowed to prove or claim in any liquidation, bankruptcy, composition, arrangement, or assignment for the benefit of creditors?

According to Chatime's 2025 Franchise Disclosure Document, the franchisee is restricted from proving or claiming in any liquidation, bankruptcy, composition, arrangement, or assignment for the benefit of creditors until Chatime has received all money payable to it by the franchisee. This restriction specifically applies to the Guarantor, who must also hold any claim and any dividend received on trust for Chatime until all debts are settled.

This clause protects Chatime's financial interests in case of the franchisee's financial distress. By preventing the guarantor from making claims in bankruptcy proceedings until Chatime is fully compensated, the franchisor ensures its debts are prioritized. This is a fairly standard practice in franchising, as franchisors want to safeguard their revenue streams and minimize losses if a franchisee becomes insolvent.

For a prospective Chatime franchisee, this means that if a guarantor is involved (likely someone who has provided a guarantee for the franchisee's obligations), that guarantor's assets could be tied up until all debts to Chatime are settled in the event of bankruptcy or liquidation. This could have significant implications for the guarantor's financial planning and should be carefully considered before entering into the franchise agreement. It is important to fully understand the extent of the guarantor's obligations and potential liabilities under this clause.