What happens if my franchisor goes into liquidation?
I'm a franchisee, and I've just been notified that my franchisor is going into liquidation. Where does this leave me?
Lawyer Answers (1): Answers from lawyers are general preliminary responses. They are not formal legal advice and cannot taken account of all your circumstances. They do not create a lawyer–client relationship.
Answer by LegalEagle™ Staff, Melbourne 3000 VIC
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Unfortunately franchisees usually don't have the right to terminate their agreement just because the franchisor has gone into liquidation unless the franchise agreement specifically includes this option. Naturally this raises significant difficulties for franchisees.
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In a liquidation scenario the liquidator will take control of the franchisor's business (often a company) and will then enforce any rights against franchisees including ensuring the continued payment of any ongoing fees.
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The rights to such payments can be sold in a liquidation and may be offered to other franchisees. This can be an advantage for a franchisee wishing to increase their level of control over or profit from the franchised business. If the franchisor’s business still holds any value it may be sold to a new party. If this process goes smoothly there may be little or even no impact on your ongoing operations.
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In any case as a franchisee you must continue to fulfil your responsibilities under the Code of Conduct and the franchise agreement.