In a Law360 article, Trenam Law Senior Counsel Anthony Marzocca discussed how franchise agreements shape Chapter 11 cases when franchisees file for bankruptcy.
He offered guidance for attorneys representing lenders, landlords, vendors, debtors, and franchisors.
Marzocca explained that a franchisor holds substantial leverage in these cases, and that its support is essential to preserving the value of an operating business. He emphasized reading the franchise agreement at the outset of a case, even before reviewing the debtor’s loan documents or leases.
Key provisions include termination, defaults, and the transfer approval process. He also noted that a franchisor’s approval process can limit asset sales, including Section 363 sales, which increases the risk for secured creditors.
“The franchisor kind of has the keys to the kingdom. You need the franchisor to be on board to continue to have value in an operating business,” said Marzocca.
You may access the article here.
