If an Engel & Volkers franchisee is adjudicated bankrupt, what happens to the Franchise Agreement?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
- 20.2 Automatic Termination Without Notice.
Franchisee will be in default under this Agreement, and all rights granted in this Agreement will immediately and automatically terminate and revert to Franchisor without notice to Franchisee, if: Franchisee, the franchised Business or any affiliate or Guarantor thereof is adjudicated as bankrupt or insolvent; all or a substantial portion of the assets of the franchised Business are assigned to or for the benefit of any creditor; a petition in bankruptcy is filed by or against Franchisee, the franchised Business and/or any affiliate or Guarantor thereof and is not immediately contested and thereafter dismissed or vacated within sixty (60) days from filing; Franchisee, the franchised Business and any affiliate or Guarantor thereof cause, permit or acquiesce in an order for relief under the U.S.
Source: Item 22 — CONTRACTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, if a franchisee, the franchised business, or any affiliate or guarantor is adjudicated bankrupt or insolvent, the Franchise Agreement will automatically terminate without notice. This also applies if a substantial portion of the assets of the franchised business are assigned to creditors, or if a bankruptcy petition is filed by or against the franchisee, the franchised business, or any affiliate or guarantor and is not contested and dismissed within 60 days.
This automatic termination has significant implications for a prospective Engel & Volkers franchisee. Bankruptcy or insolvency, even if temporary, results in the immediate loss of the franchise rights. The franchisee loses the ability to operate under the Engel & Volkers brand and system. This clause is stricter than some franchise agreements, which might allow for a cure period or franchisor discretion before termination in cases of bankruptcy.
The franchisee should carefully consider the financial risks associated with operating the business and ensure they have sufficient capital and a robust business plan to avoid financial distress. Additionally, Engel & Volkers franchisees should be aware of the potential impact of financial difficulties experienced by any affiliated entities or guarantors, as these could also trigger the automatic termination clause.
It is important for prospective franchisees to consult with a legal and financial advisor to fully understand the implications of this termination clause and to assess their own financial stability before entering into a franchise agreement with Engel & Volkers.