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.

Issue:

  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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