Financially Stressed Franchises

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).

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