In the event of bankruptcy, are transfers of the Southern Steer Multi-Unit Developer's obligations, rights, assets, or interests subject to the provisions of Section 9?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
If the Multi-Unit Developer or any person or Entity holding any Ownership Interests (direct or indirect) in the Multi-Unit Developer becomes a debtor in a proceeding under the U.S.
Bankruptcy Code or any similar law in the U.S. or elsewhere, it is the parties' understanding and agreement that any Transfer of the Multi-Unit Developer's obligations and/or rights hereunder, any material assets of the Multi-Unit Developer , or any indirect or direct interest in the Multi-Unit Developer will be subject to all of the provisions of this Section 9.
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
According to the 2025 Southern Steer Franchise Disclosure Document, if the Multi-Unit Developer or any entity holding ownership interests becomes a debtor under U.S. Bankruptcy Code or similar laws, any transfer of the Multi-Unit Developer's obligations, rights, assets, or interests will be subject to the provisions outlined in Section 9 of the agreement.
This means that in the event of bankruptcy, Southern Steer retains significant control over the transfer of the Multi-Unit Developer's business interests. Section 9 likely contains provisions such as the franchisor's right of first refusal to purchase the assets or business, ensuring that Southern Steer can maintain control over its brand and operations even in a bankruptcy situation.
For a prospective franchisee, this clause highlights the importance of understanding Section 9 of the Multi-Unit Development Agreement. It is crucial to assess the potential implications of bankruptcy on the business and the ability to transfer assets or obligations. The franchisee should seek legal counsel to fully understand their rights and obligations in such a scenario.
This type of clause is relatively common in franchise agreements, as franchisors aim to protect their brand and network from the potential disruptions and uncertainties associated with franchisee bankruptcy. It allows Southern Steer to ensure that any transfer of the business is to a suitable party who meets their standards and will continue to uphold the brand's reputation.