I am going under. Can I just walk away from my franchise?

Dear Aunty B,

 

Can you tell me if it is possible to walk away from a franchise if you are under threat of going bankrupt? Can they force you to pay the fees if you give up the business and walk away?

 

LF,

Sydney

 

Dear LF,

It must be a distressing time for you personally and financially. So to help out I went straight to the top for you.

Alan Wein, the founder of the House franchise, is also a lawyer and now runs Wein Mediation, specialising in franchise disputes. Here is his advice:

First seek legal advice from a solicitor who will refer to the conditions of your franchise agreement. Most franchise agreements will have a termination clause in the event of liquidation or bankruptcy. The effect of termination is to deprive the franchisee of any further benefits under the franchise agreement.

The other concerns that need to be addressed regard the outstanding and ongoing liabilities of the franchisee. For example is there a retail lease involved, and who holds the lease? Will the landlord allow the franchisee/franchisor tenant to just walk away? Are there any personal guarantees given by any of the parties?

You also have to look at this – a franchise agreement will have an indemnification clause specifying how the franchisor can claim back any costs from the franchisee in certain circumstances.

Questions to be answered include the circumstances for the franchisee failure, and is the franchisor responsible in any genuine way? Have there been any breaches of the franchise code or Trade Practices Act?

The franchisee must also be aware of the corporations laws and liabilities of directors while trading insolvent. And the franchising code of conduct and the dispute resolution provisions of the code.

Lastly, you need to find a non-litigious manner to resolve the dispute.

 

If you need to contact Alan for more advice, here are his details:
Wein Mediation,
Accredited Mediator Law Institute Vic
Office of the Victorian Small Business Commissioner
Email: [email protected]

Good luck!

Your Aunty B.

 

Aunty B - Your problems answered by SmartCompany's business bitch

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