What is the impact of federal bankruptcy law on the Floyds 99 franchise agreement's insolvency provisions?
Floyds_99 Franchise · 2025 FDDAnswer from 2025 FDD Document
- b. Insolvency; Assignments. If the Franchisee becomes insolvent or is adjudicated a bankrupt; or if any action is taken by the Franchisee, or by others against the Franchisee under any insolvency, bankruptcy or reorganization act, (this provision may not be enforceable under federal bankruptcy law, 11 U.S.C. §§ 101 et seq.); or if the Franchisee makes an assignment for the benefit of creditors or a receiver is appointed by the Franchisee;
Source: Item 22 — CONTRACTS (FDD pages 57–58)
What This Means (2025 FDD)
According to the 2025 Floyds 99 Franchise Disclosure Document, the franchise agreement contains a provision (20.1 b) that addresses the franchisee's insolvency or bankruptcy. However, the FDD explicitly states that this particular provision regarding insolvency and bankruptcy may not be enforceable under federal bankruptcy law, specifically referencing 11 U.S.C. §§ 101 et seq. This means that while Floyds 99 includes insolvency as a potential cause for termination, federal law might override this clause to protect the franchisee during bankruptcy proceedings.
In practical terms, a Floyds 99 franchisee facing financial difficulties and considering bankruptcy should be aware that the standard franchise agreement terms regarding termination due to insolvency might not be strictly enforced. Federal bankruptcy law is designed to provide certain protections to debtors, which could limit the franchisor's ability to terminate the agreement solely based on the franchisee's bankruptcy filing. This acknowledgement in the FDD serves as a warning that the enforceability of the termination clause is subject to federal law.
It is important for prospective Floyds 99 franchisees to consult with legal counsel to fully understand their rights and obligations under both the franchise agreement and federal bankruptcy law. This is especially crucial if they anticipate potential financial instability. Understanding the interplay between these legal frameworks can help franchisees make informed decisions and navigate challenging financial situations while preserving their business interests to the extent possible under the law.