If proceedings for composition with creditors are instituted against a Kidokinetics franchisee, does this lead to automatic termination?
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;
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, if proceedings for composition with creditors are instituted by or against a franchisee, it will result in automatic termination of the franchise agreement. This is considered a default under the agreement, leading to the termination of all rights granted to the franchisee without any prior notice.
This provision means that a Kidokinetics franchisee facing financial difficulties and attempting to negotiate a settlement with their creditors through a formal proceeding will immediately lose their franchise. This is a significant risk for franchisees, as it provides no opportunity to resolve the financial issues and retain the business. The franchisee's involvement in such proceedings, whether initiated by them or against them, triggers this automatic termination.
Automatic termination clauses are relatively common in franchise agreements, as franchisors want to protect their brand and system standards from franchisees who may be facing severe financial distress. However, the lack of a cure period in this specific instance is more stringent than some other franchise systems, where a franchisee might have a chance to rectify the situation before termination. A prospective Kidokinetics franchisee should carefully consider this clause and its implications for their business's financial stability.