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.
- Did Company X own certain assets?
- Did Company X file bankruptcy?
- 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.