If a Cinnaholic franchisee files for bankruptcy, can Cinnaholic immediately terminate the franchise agreement?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
rts to cure such breach, Franchisor shall be given an additional 60 day period to cure the same, and this Agreement shall not terminate. In the event of termination by Franchisee, all post-termination obligations of Franchisee described herein shall not be waived but shall be strictly adhered to by Franchisee.
- 21.2. Termination by Franchisor without a Cure Period. Franchisor may immediately terminate this Agreement upon written notice to Franchisee, without opportunity to cure, if:
- (i) Franchisee files a petition under any bankruptcy or reorganization law, becomes insolvent, or has a trustee or receiver appointed by a court of competent jurisdiction for all or any part of its property;
- (ii) Following commencement of the operation of the Bakery, Franchisee ceases to operate the Bakery at the Franchised Site;
- (iii) Franchisee 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;
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, Cinnaholic has the right to terminate the franchise agreement immediately if the franchisee files for bankruptcy. Specifically, Cinnaholic can terminate the agreement with written notice and without providing an opportunity to cure the breach if the franchisee files a petition under any bankruptcy or reorganization law. This also applies if the franchisee becomes insolvent or has a trustee or receiver appointed by a court for any part of their property.
This provision is fairly standard in franchise agreements, as bankruptcy can significantly impact the franchisee's ability to meet their obligations and maintain the Cinnaholic brand's standards. The clause protects Cinnaholic's interests by allowing them to promptly sever ties with a franchisee facing financial distress. This prevents further damage to the brand's reputation and ensures that the location can be taken over by a more stable operator.
Additionally, the agreement states that it, or any right or interest within it, will not be considered an asset in any insolvency, receivership, bankruptcy, composition, liquidation, arrangement, or reorganization proceeding. This further protects Cinnaholic by preventing the franchise agreement from being tied up in bankruptcy proceedings or being transferred to an undesirable party as part of the franchisee's bankruptcy estate. A prospective Cinnaholic franchisee should understand these implications and consider the risks associated with financial instability and potential termination of the agreement.