Restructuring Franchise Businesses in Chapter 11: Enhancing Lender and Franchisor Positions

Some of the estimated 805,000 franchise establishments in the U.S. (as of 2023) will inevitably wind up in Chapter 11, where bankruptcy lawyers for lenders, suppliers, franchisors, and others will need to address the fallout. Many of the most complex and most often litigated issues in all of bankruptcy are concentrated in franchisee cases: the automatic stay, assumption and assignment of executory leases and contracts, asset sales, and intellectual property.

Much of the case focuses on the debtor's potential assumption or assignment of the franchise agreement and related agreements. The debtor has a number of bankruptcy tools with which to cure defaults under the franchise agreement but those are balanced by powerful rights and defenses in favor of the franchisor. Command of Sections 362, 363, and 365 is not optional and provides insight readily applied in other cases.

Astute franchisors have numerous opportunities to improve their position with respect to the debtor franchisee as well as within their franchise system. Lenders likewise can enhance their position but have to be careful to protect their collateral. Each of the many other constituencies in the case have their own agendas and can create formidable coalitions.

Listen as this experienced and premier panel of bankruptcy restructuring lawyers and a franchise lawyer offers insight, practice points, and strategies on issues in franchisee bankruptcy cases and how they can be applied and adapted in many other cases.