It has been widely reported that franchisee loan defaults rose significantly in 2007 and 2008.[1] One may expect that trend to continue as the economy continues to suffer.Because of the complex terms and varying obligations contained in modern franchise agreements, a financially stressed franchisee should obtain experienced legal advice before attempting to resolve his or her business problems. Some points to consider should be:
Is the business plan of the franchise model still workable ?
If available, would the infusion of additional capital be a prudent plan of action ?
What forms of relief are available from the franchisor ?
Is the franchisee currently in breach of its franchise or other agreements ?
Is there more than one franchise unit owned or operated by you ?
Has the franchisor acted in a way which significantly contributed to the financial distress of your business ?
Will the business' seeking protection under the Bankruptcy Code provide a meaningful solution ?
Learning what options may exist can be very helpful in choosing how to deal with your financially stressed business.
[1]Richard Gibson, Defaults by Franchisees Soar as the Recession Deepens, New York Times (February 24, 2009).
