For Franchisors on Chapter Watch, Take into account This Recommendation | Franchise Information

Franchisors who tuned in for Lathrop GPM’s webinar March 22 got a fast course on the right way to strategy franchisees submitting for chapter.

Lathrop, shaped in 2020 via the mix of the corporations Lathrop Gage and Grey Plant Mooty, has 325 attorneys training at 12 places of work nationwide. Through the webinar, three of their attorneys, Robert Haup, Justin Sallis and Ben Struby, gave enter and recommendation on dealing with the chapter course of.

“That is all the time a well timed subject, however I believe it’s significantly topical in gentle of among the financial uncertainty we face,” Sallis stated. “When franchisors hear {that a} franchisee could also be submitting for chapter, it may be fairly daunting in lots of respects and causes.”

A handful of multi-unit franchisees have filed for chapter up to now this yr, together with two giant Burger King operators, a Georgia-based Popeyes franchisee and a McDonald’s proprietor in Pittsburgh.

In his feedback, Struby confused the significance of computerized stays, which he referred to as the “strongest instrument in civil apply on this nation. An computerized keep, he stated, goes into impact the second a chapter is filed, and broadly protects the debtor and chapter property from creditor actions.

“Within the case of an computerized keep, when a franchisor learns of a chapter, the very best factor to do is press the pause button,” Struby stated. “Don’t ship out a termination letter. Alert your counsel so you may speak about applicable subsequent steps.”

Struby added that it may be one of the vital irritating issues to cope with on the franchisor aspect.

“You’ve been working in good religion along with your franchisee to assist them get in a very good place, otherwise you’ve been combating it out with a franchisee, and also you’re at a degree the place you’re in the midst of litigation,” Struby stated. “It might not appear truthful, however with an computerized keep, the whole lot will get placed on maintain.”

This extends to franchise agreements, too, Struby stated.

“It’s a part of the chapter property,” Struby stated. “It’s all authorized or equitable pursuits of the debtor on the time of submitting, something that has worth. So, a franchise settlement, and any rights associated to these agreements, are invaluable, and are a part of that property.”

This doesn’t apply, although, if the settlement is terminated forward of time, Haup stated.

“An settlement that’s been terminated isn’t a part of the chapter property,” Haup stated. “There’s nothing a chapter courtroom can do as soon as the settlement is terminated. In case you really feel you wish to do away with the franchisee sooner slightly than later, then you must think about terminating.”

Ought to a franchisee find yourself submitting, Haup stated there will probably be a presumption throughout the courtroom that the chapter decide will give the debtor a possibility to place collectively a plan. In response, Haup stated franchisors ought to put in a movement to raise a keep, and declare irreparable hurt.

“Declare that this can be a dangerous debtor who’s not solely not paying the charges, however inflicting hurt to the model,” Haup stated. “Even when the courtroom doesn’t go together with you and grant that aid, you’re nonetheless renting area within the courtroom’s thoughts and educating it.”

Haup additionally shared some warning indicators franchisors ought to look ahead to that might sign bother earlier than a chapter submitting: non-payment of royalties and costs, a change in operational patterns, a scarcity of responsiveness, administration instability, third-party notices and poor customer support or high quality reviews.