Under what circumstances will a Devon Creek franchisee be deemed in material default, leading to automatic termination without notice?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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, a franchisee can face automatic termination without notice under specific conditions related to financial stability and legal compliance. This includes scenarios where the franchisee or a principal becomes insolvent, makes an assignment for the benefit of creditors, or files for bankruptcy. These conditions indicate severe financial distress, which Devon Creek considers an immediate threat to the franchise agreement.
Further, the franchise agreement can be automatically terminated if the franchisee or a principal is adjudicated bankrupt or insolvent, consents to the appointment of a receiver, or faces proceedings for composition with creditors. A final judgment remaining unsatisfied for 60 days or longer, unless a supersedeas bond is filed, also triggers automatic termination. Similarly, the dissolution of the franchisee, execution levied against the business or property, or the institution of a foreclosure suit against the franchised business premises or equipment that is not dismissed within 60 days are grounds for immediate termination.
These stipulations highlight the critical importance of maintaining financial solvency and adhering to legal standards for Devon Creek franchisees. The automatic termination clause underscores the potential risks associated with financial instability and legal challenges, as they can lead to the immediate loss of the franchise without an opportunity to rectify the situation. Prospective franchisees should carefully assess their financial capacity and ensure they can meet the obligations outlined in the franchise agreement to avoid these severe consequences.