If a Kidokinetics franchisee files for bankruptcy, does the agreement automatically terminate?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
Default and Automatic Termination. Franchisee will be deemed to be in default under this Agreement, 16.1. and all rights granted herein will automatically terminate without notice to Franchisee, if Franchisee becomes insolvent or makes a general assignment for the benefit of creditors; or if Franchisee or any Principal files a voluntary petition under any section or chapter of federal bankruptcy law or under any similar law or statute of the United States or any state thereof, or admits in writing its inability to pay its debts when due; or if Franchisee or any Principal is adjudicated as bankrupt or insolvent in proceedings filed against Franchisee or any Principal under any section or chapter of federal bankruptcy laws or under any similar law or statute of the United States or any state; or if a bill in equity or other proceeding for the appointment of a receiver of Franchisee or other custodian for Franchisee's business or assets is filed and consented to by Franchisee; or if a receiver or other custodian (permanent or temporary) of Franchisee's assets or property, or any part thereof, is appointed by any court of competent jurisdiction; or if proceedings for a composition with creditors under any state or federal law should be instituted by or against Franchisee; or if a final judgment remains unsatisfied or of record for 30 days or longer (unless supersedeas bond is filed); or if Franchisee is dissolved; or if execution is levied against Franchisee's business or property; or if suit to foreclose any lien or mortgage against the Kidokinetics Business premises or equipment is instituted against Franchisee and not dismissed within 30 days. No provision
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, the franchise agreement will automatically terminate if the franchisee files for bankruptcy. Specifically, if the franchisee or any principal files a voluntary petition under any section or chapter of federal bankruptcy law, the agreement terminates without notice. This also applies under any similar law or statute of the United States or any state.
This automatic termination clause has significant implications for a prospective Kidokinetics franchisee. If a franchisee encounters financial difficulties and files for bankruptcy, they will immediately lose their franchise rights without any opportunity to rectify the situation. This is a stricter condition than defaults that allow for a cure period, where the franchisee has a chance to correct the issue before termination.
It is important for potential Kidokinetics franchisees to understand the financial risks associated with the business and to have a solid financial plan in place. Given the automatic termination clause, franchisees should be prepared to handle financial challenges effectively to avoid bankruptcy and the subsequent loss of their franchise. This clause is relatively standard in franchise agreements, but the immediate nature of the termination makes it a critical point for due diligence.