Under the Clean Your Dirty Face Guaranty, what is the effect of a bankruptcy with respect to the Franchisee?
Clean_Your_Dirty_Face Franchise · 2025 FDDAnswer from 2025 FDD Document
- (c) This undertaking will continue unchanged by the occurrence of any bankruptcy with respect to Franchisee or any assignee or successor of Franchisee or by any abandonment of the Agreement by a trustee of Franchisee. Neither the Guarantor's obligations to make payment or render performance in accordance with the terms of this undertaking nor any remedy for enforcement shall be impaired, modified, changed, released or limited in any manner whatsoever by any impairment, modification, change, release or limitation of the liability of Franchisee or its estate in bankruptcy or of any remedy for enforcement, resulting from the operation of any present or future provision of the U.S. Bankruptcy Act or other statute, or from the decision of any court or agency;
- (d) Franchisor may proceed against Guarantor and Franchisee jointly and severally, or Franchisor may, at its option, proceed against Guarantor, without having commenced any action, or having obtained any judgment against Franchisee. Guarantor hereby waives the defense of the statute of limitations in any action hereunder or for the collection of any indebtedness or the performance of any obligation hereby guaranteed; and
- (e) Guarantor agrees to pay all reasonable attorneys 'fees and all costs and other expenses incurred in any collection or attempt to collect amounts due pursuant to this undertaking or any negotiations relative to the obligations hereby guaranteed or in enforcing this undertaking against Guarantor.
Source: Item 22 — CONTRACTS (FDD page 54)
What This Means (2025 FDD)
According to Clean Your Dirty Face's 2025 Franchise Disclosure Document, the Guaranty signed by the guarantor remains in effect even if the franchisee declares bankruptcy. The guarantor's obligations to make payments or fulfill performance requirements are not affected, changed, or limited by the franchisee's bankruptcy. This means that even if the franchisee's liability is impaired or limited due to bankruptcy laws, the guarantor's responsibility remains unchanged.
Clean Your Dirty Face can pursue action against the guarantor without first taking action or obtaining a judgment against the franchisee. The guarantor also waives the defense of the statute of limitations, ensuring that Clean Your Dirty Face can pursue claims even if a significant amount of time has passed. The guarantor is responsible for covering all reasonable attorney's fees, costs, and expenses related to collecting amounts due or enforcing the guaranty.
This arrangement protects Clean Your Dirty Face by ensuring that there is always a party responsible for the financial and performance obligations of the franchise agreement, even if the franchisee becomes insolvent. Prospective franchisees should be aware that if they require a guarantor, that guarantor's assets are at risk even in the event of the franchisee's bankruptcy. This is a fairly standard practice in franchising, as it provides an additional layer of security for the franchisor.