Franchise businesses that become insolvent face an extra layer of complexity in an ABC: the franchisor. The franchise agreement almost certainly contains provisions addressing what happens on insolvency, and the franchisor has rights that affect how the assignment proceeds.
Franchise Agreement Issues
Most franchise agreements: prohibit assignment without the franchisor’s consent, give the franchisor termination rights on insolvency, and include provisions about who can acquire the franchise in a sale. The assignee must engage the franchisor early — before attempting to sell the franchise location as a going concern — to understand what the franchisor will permit.
Some franchisors are cooperative; others are not. A franchisor who wants to preserve the franchise location may work with the assignee to identify a qualified buyer and facilitate a going-concern sale. A franchisor who wants to exit the relationship will use the insolvency as an opportunity to terminate the agreement. The outcome often depends on the franchisor’s assessment of the specific location’s value.
The California ABC System gives business owners and creditors the exact tools, templates, and step-by-step guidance to navigate an Assignment for Benefit of Creditors — faster and cheaper than bankruptcy. Request your free evaluation here.
California ABC System — Assignment for Benefit of Creditors 
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