Franchising: Franchising Restructuring and Insolvency
Every franchisor will likely encounter distressed franchisees. A legal team experienced in dealing with struggling franchisees in an expedient and cost-effective manner is critical to maintaining a healthy franchise system. Our franchising restructuring and insolvency practice is adept at rehabilitating or terminating franchisor/franchisee relationships.
We regularly represent franchisors in out-of-court workouts and restructurings with troubled franchisees, collection and enforcement litigation, bankruptcy cases, and receivership matters. Lawyers in our franchise restructuring and insolvency group have represented franchisors in thousands of matters and have recovered more than one hundred million dollars for our clients in the process. More importantly, we have helped franchisors preserve production from a legion of once underperforming franchised locations—yielding significant “post restructured” royalties. We provide guidance on these and other related matters across the globe.
Some of the largest franchisors in the world as well as a number of emerging franchise systems turn to our team to serve as national or international restructuring and insolvency counsel. Our clients include franchisors in nearly every type of franchised business such as hospitality, quick service restaurants, real estate brokerage, and fitness.
In dealing with distressed situations, we often assist franchisors to preserve and expand production by way of:
Assumption of franchise agreements by a restructured franchisee;
Assumption of franchise agreements by a faltering franchisee together with assignment of those agreements to third parties approved by franchisor;
Rejection of existing franchise agreements and the entry of new franchise agreements with a debtor or an approved third-party purchaser of the assets of the franchisee; or
Surrender of collateral to our franchisor clients and the sale or assignment of that property to a new franchisee or an existing “good standing” franchisee.
Our clients sometimes utilize the workout or bankruptcy process to enhance their position by negotiating favorable modification of existing franchise agreements (such as term extensions, royalty rate increases, or modifications of areas of protection) as part of the retention process; obtaining reaffirmation agreements from existing guarantors or adding new guarantors; securing completion of improvement obligations; or requiring a change in management or retention of professional outside management for the franchised location.
Franchisors also benefit from proactive participation in bankruptcy and receivership matters by protecting their intellectual property and the reputation of their brands. For instance, on numerous occasions, we have successfully obtained bankruptcy and state court orders compelling de-identification and disassociation of “bad acting” or infringing unit owners.
In instances where the franchisor-franchisee relationship is beyond repair, our team has represented franchisors in obtaining significant financial recoveries from former franchisees or guarantors. We also have efficiently represented franchisors in the termination and de-identification of a failing location and removal of a substandard operator from the brand, when necessary. Our lawyers are knowledgeable and experienced in obtaining, collecting, and enforcing judgments.
Our worldwide footprint and significant experience in the franchising industry allow us to service franchisors in the debtor-creditor arena in a broad and cost-effective manner. Our clients find it beneficial to have a group of lawyers—who are familiar with their systems and goals—providing representation on insolvency/workout matters on a national or international scale. Franchisors also benefit from our experience dealing with debtor/creditor matters as there are few issues that may arise in bankruptcy, receivership, or workout cases that our lawyers have not successfully addressed.
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