Franchisor insolvency

A franchisee or a buyer meets this term when the franchisor files a notice of intention or a proposal, or goes bankrupt. The Office of the Superintendent of Bankruptcy describes a bankrupt as a person unable to pay a debt who has declared bankruptcy. The answer on checking a franchise’s outstanding defaults covers another question to ask.

What the BIA says about agreements

Under s. 65.11(1), subject to subsections (3) and (4), a debtor for whom a notice of intention or a proposal was filed may, on notice to the other parties and the trustee, disclaim or resiliate an agreement it was party to on the filing day. It may not give notice unless the trustee approves; if the trustee does not, s. 65.11(4) lets it apply to a court. Within 15 days after the notice, a party may apply to a court for an order that the agreement not be disclaimed (s. 65.11(3)). Under s. 65.11(7), a disclaimer does not affect a right to use intellectual property granted to the other party, on conditions. Subsection (2) limits individuals to business agreements, and subsection (10) lists agreements the section does not apply to, so read both.

What to check or ask

• Whether a notice of intention or proposal has been filed, using a bankruptcy and insolvency search
• Ontario’s O. Reg. 581/00, s. 2, requires details of bankruptcy or insolvency proceedings, any part of which took place in the six years before the document, against the franchisor and others it lists; ask what it shows
• Whether the lease or supply arrangements depend on the franchisor