One of the tools of the debtor filing bankruptcy is the ability to assume contracts or reject burdensome contracts. When a franchisor files bankruptcy, it may choose to reject the undesirable franchise agreements and cause the franchisee to change its name. This is an extraordinary option for the franchisor because it can shape the franchise system when it undergoes corporate renewal. The franchisor can also use this tool to ready itself for sale within the bankruptcy, for example, by jettisoning geographies it no longer desires to support. A recent case suggests that this tool may no longer be available for debtor-franchisors.
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Franchise Law
When a Franchisor Files, Can the Franchisee Keep the Name?
The Legal Intelligencer
August 24, 2012
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