In the event of a Cinnaholic developer's insolvency, is the Development Agreement considered an asset?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
- (ii) Developer seeks to effect a plan of liquidation, reorganization, composition or arrangement of its affairs, whether or not the same shall be subsequently approved by a court of competent jurisdiction; it being understood that in no event shall this Agreement or any right or interest hereunder be deemed an asset in any insolvency, receivership, bankruptcy, composition, liquidation, arrangement or reorganization proceeding;
Source: Item 23 — RECEIPT (FDD pages 62–269)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the Development Agreement is explicitly not considered an asset if the developer becomes insolvent. The FDD states that in the event the developer files for bankruptcy, becomes insolvent, or has a trustee or receiver appointed for their property, the Development Agreement will not be deemed an asset in any insolvency, receivership, bankruptcy, or reorganization proceeding. This means that the agreement cannot be used to offset debts or be claimed by creditors.
This provision protects Cinnaholic by preventing the Development Agreement from being tied up in legal proceedings if the developer faces financial difficulties. It ensures that Cinnaholic can terminate the agreement and find a more financially stable developer to continue developing Cinnaholic locations.
For a prospective Cinnaholic developer, this clause is a significant risk factor. If the developer encounters financial problems, the Development Agreement offers no protection or value as an asset. This could leave the developer with substantial unrecouped investments, particularly the development fee, which is earned by Cinnaholic upon signing the agreement and is generally non-refundable. Therefore, developers must carefully assess their financial stability and risk tolerance before entering into a Development Agreement with Cinnaholic.