How do bankruptcy events of the Developer affect the liability under the Floyds 99 Guaranty?
Floyds_99 Franchise · 2025 FDDAnswer from 2025 FDD Document
Such liability shall not be diminished, relieved or otherwise affected by the occurrence of any of the following events: (a) the commencement by Developer of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended or replaced, or any other applicable federal or state bankruptcy, insolvency or other similar law (collectively, the "Bankruptcy Laws"), (b) the consent by Developer to the appointment of or taking possession by a receiver, liquidator, assignee, trustee or custodian of Developer or for any substantial part of the assets of Developer, (c) any assignment by Developer for the benefit of creditors, (d) the failure of Developer generally to pay its debts as such debts become due, (e) the taking of corporate action by Developer in the furtherance of any of the foregoing, or (f) the entry of a decree or order for relief by a court having jurisdiction in respect of Developer in any involuntary case under the Bankruptcy Laws, or appointing a receiver, liquidator, assignee, custodian or trustee of Developer or for any substantial part of its assets, or ordering the winding-up or liquidation of any of its affairs and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days. In addition, such liability shall not be affected or impaired by any payment made to Franchisor under or related to the Agreement for which Franchisor is required to reimburse Developer pursuant to any court order or in settlement of any dispute, controversy or litigation in any bankruptcy, reorganization, arrangement, moratorium or other federal or state debtor relief proceeding.
Source: Item 23 — RECEIPT (FDD pages 58–229)
What This Means (2025 FDD)
According to the 2025 Floyds 99 Franchise Disclosure Document, the liability of the guarantor is not diminished, relieved, or otherwise affected by the developer's bankruptcy. This means that even if the developer, the entity initially responsible for the financial and operational obligations, declares bankruptcy, the guarantor remains fully liable for all obligations under the Development Agreement.
Specifically, the guarantor's liability remains intact if the developer commences a voluntary case under federal bankruptcy laws, consents to the appointment of a receiver or similar custodian, makes an assignment for the benefit of creditors, fails to pay debts as they become due, takes corporate action furthering any of the aforementioned events, or has a court order entered against them in an involuntary bankruptcy case. The guarantor's obligations are not reduced even if Floyds 99 is required to reimburse the developer for payments made under the agreement due to a court order or settlement in a bankruptcy proceeding.
This provision protects Floyds 99 by ensuring that there is always a party responsible for fulfilling the obligations of the Development Agreement, regardless of the developer's financial status. For a prospective franchisee acting as a guarantor, this represents a significant risk, as they could be held personally liable for substantial debts and obligations if the developer's business fails and enters bankruptcy. It is crucial for potential guarantors to fully understand the financial health and business plan of the developer before agreeing to guarantee their obligations under the Development Agreement.