How does insolvency of the franchisee constitute a breach or default under the Coffee News franchise agreement?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
- 13.1 Breach by Franchisee. If Franchisee breaches or defaults under any provision of this Agreement, Franchisor shall have all rights and remedies permitted by law or equity, including, but not limited to, the right of termination. Any termination by Franchisor shall have no effect upon Franchisee's obligation to pay the non-refundable deposit due in accordance with subparagraph 2.1 (a) and/or Schedule A. The forfeiture by Franchisee of such non-refundable deposit in the case of termination shall be liquidated damages and not a penalty. For the purposes of this paragraph, a default or breach shall include, but not be limited to, the following:
- (a) Unlicensed Distribution. The printing or distribution of unlicensed or unauthorized issues of the Periodical, either hardcopies or digital versions.
- (b) Similar Publication. The printing, distribution or participation in, directly or indirectly, any publication of a similar type to the Periodical.
- (c) Insolvency. The insolvency, bankruptcy or placement in receivership of Franchisee.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to Coffee News's 2025 Franchise Disclosure Document, the insolvency, bankruptcy, or placement in receivership of a franchisee constitutes a breach or default under the franchise agreement. This is explicitly stated as one of the conditions that triggers the franchisor's right to exercise all remedies permitted by law or equity, including the right of termination.
For a prospective Coffee News franchisee, this means that if the franchisee becomes insolvent, declares bankruptcy, or is placed in receivership, Coffee News has the right to terminate the franchise agreement. This clause protects Coffee News from potential financial losses and reputational damage that could arise from a franchisee's financial instability.
This type of clause is relatively standard in franchise agreements across various industries. It allows the franchisor to take swift action to protect the brand and the network of franchisees. It is important for a potential franchisee to understand the financial risks involved in operating a franchise and to have a solid financial plan in place to avoid such situations.
In the event of such a breach, Coffee News retains the right to terminate the agreement, and the franchisee's non-refundable deposit is forfeited as liquidated damages, not as a penalty. This highlights the importance of understanding all the terms and conditions of the franchise agreement before signing.