What happens to the Exit franchise agreement if the franchisee files for bankruptcy?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
y with the provisions of this Agreement three (3) or more times, whether or not corrected after notice.
- (iv) Franchisee or any of its equity holders, directors or officers are convicted of a felony or other crime that, in the reasonable judgment of Subfranchisor, impairs the goodwill associated with the Proprietary Marks.
- (v) The filing of a voluntary or involuntary petition under any bankruptcy or insolvency law or a petition for the appointment of a receiver, or an assignment for the benefit of creditors, if Franchisee or a guarantor of this Agreement i
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the filing of a voluntary or involuntary petition under any bankruptcy or insolvency law by the franchisee or a guarantor of the agreement can result in the termination of the franchise agreement. Specifically, this event of default gives the subfranchisor the right to terminate the agreement after providing notice to the franchisee, and there is no opportunity for the franchisee to cure this default. This means that upon filing for bankruptcy, Exit has the right to immediately terminate the franchise agreement.
This lack of a cure period is a critical point for prospective Exit franchisees. In many franchise systems, a franchisee might have a period to resolve financial issues or reorganize before the franchisor terminates the agreement. However, with Exit, the bankruptcy filing itself triggers immediate termination rights. This could leave the franchisee without the business and its associated income, potentially exacerbating their financial difficulties.
It is important for potential Exit franchisees to understand the implications of this clause. They should carefully consider their financial stability and risk tolerance before entering into a franchise agreement with Exit. Additionally, prospective franchisees should seek legal and financial advice to fully understand the potential consequences of bankruptcy on their franchise agreement and personal finances.