What happens when the franchisor goes south?

There are a lot of foolish ideas about what happens when franchisor goes insolvent or bankrupt [by design or accidentally]. While I am not a bankruptcy expert nor am I a lawyer, I have seen the devastation that corporate maneuvering can cause.

It’s usually a shitty situation.

As an excellent explanation of one example, please see Blue MauMau’s Bankruptcy Experts Are Wary of Bennigan’s IP Transfers article.

Paul Steinberg’s comments are right on, too.


  1. Did Company X own certain assets?
  2. Did Company X file bankruptcy?
  3. Did Company X transfer assets to Company Y immediately prior to filing for bankruptcy protection?

As Profs. Williams and Zinman note, if so then there may be a problem.

What I can absolutely, positively, 100%-of-the-time guarantee you is:

  • it is an expensive and time-consuming exercise to prove that a franchisor has cherry-picked [in Canada, we call it boot-strapping a corporation] assets.

They might know, you might know, the Court might know but there is a HUGE difference between knowing or suspecting and getting someone to do something about it.

Without an independent franchisee association [helped by a tough lawyer] acting aggressively at the first sign of trouble, franchisees are usually never even considered a party to the proceedings.

  • When your house is on fire, it is often the wrong time to race out to buy property insurance.

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