Can Chatime terminate the agreement immediately if the franchisee files for bankruptcy?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
- (h) Franchisee files a voluntary petition in bankruptcy, files any pleading seeking any reorganization, liquidation or dissolution under any law, admits or fails to contest the material allegations of any such pleading filed against it, or is adjudicated a bankrupt or insolvent;
- Item 17(f), under the heading entitled "Termination by Franchisor With Cause," will be amended by the addition of the following language at the end of the section:
The provision in the Franchise Agreement which provides for termination upon bankruptcy of the franchisee may not be enforceable under federal bankruptcy law (11 U.S.C. §101 et seq.).
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the franchisor can terminate the agreement immediately if the franchisee files for bankruptcy. Specifically, if the franchisee files a voluntary petition in bankruptcy, files any pleading seeking any reorganization, liquidation or dissolution under any law, admits or fails to contest the material allegations of any such pleading filed against it, or is adjudicated a bankrupt or insolvent, Chatime has grounds for default.
However, the Maryland Addendum to the Chatime Franchise Disclosure Document states that the provision in the Franchise Agreement which provides for termination upon bankruptcy of the franchisee may not be enforceable under federal bankruptcy law. This suggests that while Chatime's standard agreement allows for immediate termination upon bankruptcy, this provision's enforceability can vary based on jurisdiction and federal law.
It is important for a prospective Chatime franchisee to understand the implications of this clause, especially considering the potential financial risks involved in starting and running a franchise. Franchisees should consult with a legal professional to fully understand their rights and obligations in the event of financial distress or bankruptcy, particularly in the state where they plan to operate their franchise.