What happens if a Southern Steer franchisee files for bankruptcy?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
then they will be valued at book value as determined by generally accepted accounting principles (cost less depreciation). The Franchisor will have the right, but not the obligation, to purchase any or all of the Major Assets from the Franchisee for cash within 20 days after the fair market value of the Major Assets has been established by the Arbitrator in writing. Nothing in this provision may be construed to prohibit the Franchisor from enforcing the postterm obligations and conditions of this Agreement, including but not limited to, the covenants not to compete contained in Section 16.2.
19.11. Bankruptcy Issues. If the Franchisee or any person or Entity holding any Ownership Interests (direct or indirect) in the Franchisee 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 Franchisee's obligations and/or rights hereunder, any material assets of the Franchisee, or any indirect or direct interest in the Franchisee will be subject to all of the provisions of this Section 19.
20. DEFAULT; SUSPENSION AND TERMINATION
- 20.1. Immediate Termination. The Franchisee will be deemed to be in Default subject to immediate termination of this Agreement and the rights granted herein or the exercise of any other remedies in accordance with Sections 20.4 and 20.5, without prior notice of the default from the Franchisor and without an opportunity to cure the Default unless precluded by applicable law or otherwise as stated herein, if any of the following events occur:
- (a) the Franchisee, Owners, Operating Principal or the Designated Manager(s) are convicted of, or plead guilty to a charge of violating any law relating to the Franchisee's Southern Steer Business or that adversely affects the operation, maintenance, reputation, or goodwill of the Southern Steer Business, System, the Marks or the Franchisor;
- (b) the Franchisee or Guarantor(s) are deemed insolvent within the meaning of applicable state or federal law, any involuntary petition for bankruptcy is filed against the Franchisee and the Franchisee is unable within a period of 60 days from such filing to obtain the dismissal of the bankruptcy petition, or the Franchisee files for bankruptcy or is adjudicated a bankrupt under applicable state or federal law;
- (c) the Franchisee or Guarantor(s) make an assignment for the benefit of creditors or enters into any similar arrangement for the disposition of its assets for the benefit of creditors;
- (d) the Franchisee voluntarily or otherwise Abandons the Southern Steer Business;
- (e) the Franchisee fails or refuses to provide the Financial Records and other materials requested by the Franchisor to substantiate the Franchisee's Financial Statements or to produce and permit the Franchisor to audit the Franchisee's Financial Records and fails to remedy such breach within 10 days after Franchisee becomes aware or reasonably should have become aware of such breach;
Source: Item 22 — ITEM. 22 CONTRACTS (FDD pages 61–168)
What This Means (2025 FDD)
According to Southern Steer's 2025 Franchise Disclosure Document, if a franchisee files for bankruptcy, several conditions and consequences come into effect. If the franchisee is deemed insolvent or files for bankruptcy, or if an involuntary petition for bankruptcy is filed against them and they cannot dismiss it within 60 days, it constitutes a default under the franchise agreement. This can lead to immediate termination of the agreement, without prior notice or an opportunity to cure the default, unless prohibited by law.
Furthermore, the FDD states that any transfer of the franchisee's obligations, rights, material assets, or any direct or indirect interest in the franchise is subject to all provisions within Section 19 of the agreement if the franchisee or any person or entity holding ownership interests becomes a debtor under the U.S. Bankruptcy Code. This indicates that Southern Steer retains significant control over the franchise's assets and operations even during bankruptcy proceedings.
Southern Steer emphasizes that it would be commercially unreasonable if a franchisee could default and escape the financial consequences of their contractual commitment. Therefore, franchisees may be required to sign a general release in favor of Southern Steer if the franchisor chooses to waive its rights to collect amounts that would have been due if the franchisee had continued operating for the initial term of the agreement. This highlights the financial obligations that continue even if the franchise ceases operations due to bankruptcy. Additionally, upon termination, Southern Steer has the right to acquire all assets of the franchisee's business, including real property, with the purchase price calculated as per the Brand Manual.