Franchisor insolvency history (disclosure item)

A buyer meets this item in the disclosure document. It answers a question separate from the franchisor’s financial statements: has the franchisor, or someone running it, been through a bankruptcy or insolvency proceeding. Ontario’s regulation reaches proceedings, voluntary or otherwise, any part of which took place in the six years before the date of the disclosure document. See what a franchisor must disclose before you sign.

Who is covered

Ontario’s O. Reg. 581/00, s. 2, paragraph 6, lists the franchisor or its associate; a corporation or partnership whose directors, officers or general partners include a current director, officer or general partner of the franchisor, or included one while the proceeding was taking place; and a director, officer or general partner of the franchisor in their personal capacity. Alberta’s Schedule 1, item 5, covers the previous six years for the franchisor and its associates and for a corporation or partnership tied to current directors, general partners and officers of the franchisor who have management responsibilities relating to the franchise.

What to ask

• Whether the document reports any proceeding and, if so, against whom
• Whether a named person held office when it took place
• What has changed since; the Bankruptcy and Insolvency Act side is in franchisor insolvency