What options does Checkersrallys have in the event of a franchisee's default on a secured note?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Notes receivable consist of funds extended to franchisees as consideration for the sale of restaurants and repayment terms on past due rents and royalties. Specific allowances are established when collection is no longer deemed likely. With respect to secured notes, the assets of the associated restaurant often act as collateral. In the event of default, the Company has the option to acquire the restaurant assets, with the balance of the outstanding notes included in the consideration provided by the Company. However, not all notes are collateralized. Interest on outstanding notes is charged according to the terms of the promissory note and is recognized on a period basis over the term of the note.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, in the event that a franchisee defaults on a secured note, Checkersrallys has the option to acquire the assets of the associated restaurant. The outstanding balance of the notes would be included in the consideration Checkersrallys provides for the restaurant assets. This indicates that Checkersrallys can take over the physical assets of the restaurant to recoup the funds owed on the secured note.
This clause protects Checkersrallys's financial interests by allowing them to recover value from a defaulting franchisee's restaurant. It also implies that Checkersrallys carefully assesses the value of the restaurant assets when extending secured notes to franchisees, as these assets serve as collateral. However, the document also notes that not all notes are collateralized, meaning that Checkersrallys may not always have this recourse in case of default.
For a prospective franchisee, this highlights the importance of understanding the terms of any promissory notes and the implications of default. If a franchisee defaults on a secured note, they risk losing their restaurant assets to Checkersrallys. It also suggests that franchisees should inquire about the conditions under which notes are secured and the valuation methods Checkersrallys uses for restaurant assets acting as collateral.