How quickly must an Exit Franchisee present an irrevocable letter of credit to the Subfranchisor if bankruptcy precludes termination?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
If termination of this Agreement due to Franchisee's breach thereof or due to the commencement with respect to one or more of Franchisee's bankruptcy or similar proceedings, or expiration of this Agreement is precluded by operation of the bankruptcy laws, then Subfranchisor may terminate this Agreement unless Franchisee immediately and fully compensates Subfranchisor for any such breach or provides Subfranchisor with adequate assurance of future performance of this agreement.
For purposes of this paragraph, full compensation shall include full payment of any losses suffered by Subfranchisor due to Franchisee's actions or inaction, and adequate assurances or prompt and full compensation shall include, at a minimum, immediate presentation to Subfranchisor by Franchisee of an irrevocable letter of credit in an amount sufficient for full compensation of Subfranchisor (as defined above), issued to the account of Franchisee by a commercial bank, payable to Subfranchisor, at sight, within thirty (30) days from the date thereof, upon presentation of any affidavit signed by Subfranchisor stating that Subfranchisor is entitled to payment pursuant to this Agreement.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, if the termination of the franchise agreement is prevented due to the franchisee's breach or the commencement of bankruptcy proceedings, the subfranchisor can still terminate the agreement unless the franchisee immediately compensates the subfranchisor for the breach or provides adequate assurance of future performance.
To ensure adequate assurance and full compensation to the subfranchisor, the Exit franchisee must present an irrevocable letter of credit. This letter of credit must be in an amount sufficient to fully compensate the subfranchisor for any losses suffered due to the franchisee's actions or inaction.
The irrevocable letter of credit must be issued by a commercial bank to the account of the franchisee, payable to the subfranchisor at sight, within thirty (30) days from the date of the letter. The subfranchisor can claim payment by presenting an affidavit stating their entitlement to payment under the franchise agreement.