What specific actions related to bankruptcy by the Devon Creek franchisee or principal will trigger automatic termination?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
17. DEFAULTS
- 17.1 Default and Automatic Termination.
Franchisee shall be deemed to be in material default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee or Principal shall become insolvent or makes a general assignment for the benefit of creditors; or if Franchisee or Principal files a voluntary petition under any section or chapter of federal bankruptcy law or under any similar law or statute of the United States or any state thereof, or admits in writing an inability to pay debts when due; or if Franchisee or Principal is adjudicated a bankrupt or insolvent in proceedings filed against Franchisee or Principal under any section or chapter of federal bankruptcy laws or under any similar law or statute of the United States or any state; or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or Principal or other custodian for Franchisee's business or assets is filed and consented to by Franchisee or Principal; or if a receiver or other custodian (permanent or temporary) of Franchisee's or Principal'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 Principal; or if a final judgment remains unsatisfied for of record for sixty (60) days or longer (unless supersedeas bond is filed); or if Franchisee is dissolved; or if execution is levied against Franchisee's or Principal's business or property; or if suit to foreclose any lien or mortgage against the Franchised Business premises or equipment is instituted against Franchisee and not dismissed within sixty (60) days.
Source: Item 22 — CONTRACTS (FDD page 45)
What This Means (2024 FDD)
According to Devon Creek's 2024 Franchise Disclosure Document, certain bankruptcy-related actions by the franchisee or its principal will result in automatic termination of the franchise agreement. This means that upon the occurrence of any of these events, the agreement ends immediately without Devon Creek needing to provide any notice or opportunity to correct the situation.
Specifically, the franchise agreement will automatically terminate if the franchisee or principal: becomes insolvent or makes a general assignment for the benefit of creditors; files a voluntary petition under any section or chapter of federal bankruptcy law or similar state law; admits in writing their inability to pay debts when due; is adjudicated bankrupt or insolvent in proceedings filed against them under federal or state bankruptcy laws; consents to the filing of a bill in equity or other proceeding for the appointment of a receiver or custodian for their business or assets. Automatic termination also occurs if a receiver or other custodian is appointed by a court, or if proceedings for a composition with creditors are instituted by or against the franchisee or principal.
These provisions are fairly standard in franchise agreements, as franchisors want to protect their brand and system from the negative impacts that a franchisee's financial distress can cause. The automatic termination clause provides Devon Creek with a swift and decisive way to end the relationship and regain control of the franchise if the franchisee or its principal encounters severe financial difficulties. A prospective franchisee should carefully consider these conditions and ensure they have a solid financial plan to avoid such defaults.