What happens if a Del Taco franchisee becomes insolvent?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
o all of the other provisions of this Section 12; and further, without limiting the foregoing, it is agreed that any such offering shall be subject to Del Taco's approval as to the structure and voting control of the offeror (and Franchisee, if Franchisee is not the offeror) after the financing is completed.
13. Default and Termination.
- 13.1 Automatic Termination. Franchisee shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee shall become insolvent or make a general assignment for the benefit of creditors; or if a petition in bankruptcy is filed by Franchisee or such a petition is filed against and not opposed by Franchisee; or if Franchisee is adjudicated bankrupt or insolvent; or if a bill in equity or other proceeding for the appointment of a receiver or other custodian for Franchisee's business or assets is filed and consented to by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction; or if proceedings for a composition with creditors under any state or federal law should be instituted by or against Franchisee; or if a final judgment of $50,000 or more against Franchisee or Franchisee's affiliate remains unsatisfied or of record for thirty (30) days or longer (unless unappealed or a supersedeas bond is filed); or if Franchisee is dissolved; or if an attachment or execution is levied against Franchisee's business or property, including Franchisee's bank accounts, property or any rec
Source: Item 22 — CONTRACTS (FDD pages 58–59)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, if a franchisee becomes insolvent, their franchise agreement will automatically terminate without notice from Del Taco. This also applies if the franchisee makes a general assignment for the benefit of creditors, files a bankruptcy petition (or one is filed against them and not opposed), or is adjudicated bankrupt or insolvent.
Additionally, automatic termination occurs if a bill in equity or other proceeding is filed for the appointment of a receiver or custodian for the franchisee's business or assets, and the franchisee consents. The same applies if a receiver or custodian is appointed by a court, or if proceedings for composition with creditors are instituted by or against the franchisee. Other events leading to automatic termination include a final judgment of $50,000 or more remaining unsatisfied for 30 days, the franchisee's dissolution, or an attachment/execution levied against the business or property not dismissed within 30 days.
Furthermore, if a suit to foreclose any lien or mortgage against the restaurant premises or equipment is instituted and not dismissed within five days, or if the real or personal property of the restaurant is sold after levy by a sheriff, marshal, or constable, the franchise agreement will automatically terminate. This means a Del Taco franchisee needs to maintain financial solvency and address legal or financial issues promptly to avoid losing their franchise rights without prior warning or opportunity to rectify the situation.