Does the automatic termination clause for Cream franchises apply if a petition in bankruptcy is filed against any of the franchisee's owners?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
This Agreement and all rights granted to you in this Agreement shall automatically terminate without notice if: (1) you make an assignment for the benefit of creditors; (2) you consent to the appointment of a receiver, trustee, or liquidator of all or the substantial part of your property; (3) your Shop is attached, seized, subjected to a writ or distress warrant, or levied upon, unless the attachment, seizure, writ, warrant, or levy is vacated within 30 days; (4) any order appointing a receiver, trustee, or liquidator of you or your Shop is not vacated within 30 days following the order's entry; and/or (5) you or any of your owners file a petition in bankruptcy or a petition in bankruptcy is filed against you.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, the franchise agreement can be automatically terminated if you or any of your owners file a petition in bankruptcy, or if a petition in bankruptcy is filed against you. This means that the agreement terminates without Cream needing to provide any prior notice. This clause is found under the section detailing automatic terminations of the franchise agreement.
However, the FDD also includes a caveat specific to Maryland franchisees. For those operating in Maryland, the automatic termination provision related to bankruptcy might not be fully enforceable under federal bankruptcy law (11 U.S.C. Sections 101 et seq.). Cream states that it will enforce the provision to the extent that it is enforceable.
Prospective franchisees should be aware of this automatic termination clause and its potential implications. If financial difficulties arise for the franchisee or any of their owners, it could lead to the termination of the franchise agreement. Franchisees in Maryland should consult with legal counsel to understand the extent to which the bankruptcy clause is enforceable under federal law.