In the event of a Face Foundrie franchisee's insolvency, is the franchise agreement considered an asset?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
14.02 Termination by Franchisor without a Cure Period. Franchisor may immediately terminate this Agreement upon written notice to Franchisee, without opportunity to cure, if:
(a) Franchisee files a petition under any bankruptcy or reorganization law, becomes insolvent, or has a trustee or receiver appointed by a court of competent jurisdiction for all or any part of its property;
(b) Franchisee seeks to effect a plan of liquidation, reorganization, composition or arrangement of its affairs, whether or not the same shall be subsequently approved by a court of competent jurisdiction; it being understood that in no event shall this Agreement or any right or interest hereunder be deemed an asset in any insolvency, receivership, bankruptcy, composition, liquidation, arrangement or reorganization proceeding;
(c) Franchisee has an involuntary proceeding filed against it under any bankruptcy, reorganization, or similar law and such proceeding is not dismissed within sixty (60) days thereafter;
(d) Franchisee makes a general assignment for the benefit of its creditors;
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2025 FDD)
According to the 2025 Face Foundrie Franchise Disclosure Document, the franchise agreement is explicitly not considered an asset in the event of insolvency. Specifically, the agreement states that in situations such as bankruptcy, receivership, or liquidation, the franchise agreement will not be regarded as an asset. This provision protects Face Foundrie by preventing the franchise agreement from being transferred to a third party as part of the franchisee's bankruptcy proceedings.
This clause has significant implications for a prospective Face Foundrie franchisee. If the franchisee faces financial difficulties leading to insolvency, the franchise agreement cannot be used to offset debts or liabilities. The franchisee cannot sell or transfer the agreement as part of bankruptcy proceedings. This condition reduces the franchisee's options in a financial crisis and underscores the importance of sound financial planning and management.
For potential franchisees, this aspect of the agreement highlights the risks associated with the Face Foundrie franchise. It emphasizes the need for a comprehensive understanding of the financial obligations and potential pitfalls of the business. Prospective franchisees should seek legal and financial advice to fully grasp the implications of this clause and its impact on their investment. This provision is not uncommon in franchising, as franchisors typically want to maintain control over who operates their branded locations and protect their brand standards, even in cases of franchisee financial distress.