Does federal bankruptcy law affect Floors To Go's termination rights?
Floors_To_Go Franchise · 2025 FDDAnswer from 2025 FDD Document
The provision in the Membership Agreement that provides for termination upon bankruptcy of the franchisee may not be enforceable under federal bankruptcy law (11 U.S.C. Section 101, et. seq.)
Any claims arising under Maryland Franchise Registration and Disclosure Law must be brought within 3 years after the grant of the franchise.
Source: Item 23 — RECEIPTS (FDD pages 47–204)
What This Means (2025 FDD)
According to the 2025 Floors To Go FDD, federal bankruptcy law does impact the company's termination rights. Specifically, the FDD acknowledges that the standard provision allowing termination upon a franchisee's bankruptcy may not be fully enforceable under federal bankruptcy law (11 U.S.C. Section 101, et. seq.).
However, the agreement includes stipulations intended to mitigate these limitations. If a franchisee becomes subject to a bankruptcy case, they consent to relief from the automatic stay imposed by 11 U.S.C. § 362(a) upon Floors To Go's motion. This allows Floors To Go to unilaterally terminate the agreement post-petition, according to the agreement's terms. The franchisee also agrees to waive any rights under 11 U.S.C. § 365 to challenge Floors To Go's decision in the event of a bankruptcy filing.
These clauses aim to strengthen Floors To Go's position in the event of a franchisee's bankruptcy, but their enforceability can be subject to court interpretation. Prospective franchisees should be aware that bankruptcy laws are designed to protect debtors, and waivers of rights in this context may not always be upheld. It is advisable to consult with a legal professional to fully understand the implications of these provisions and how they might affect their rights in a bankruptcy scenario.