Gardere partner Jason B. Binford sat down with Inside Counsel to discuss how the bankruptcy process impacts a franchise relationship, and the necessary steps that parties can take to better position themselves in the event of a bankruptcy filing.
According to Binford, franchisers can prevent a bankruptcy by understanding that a bankruptcy filing can be expensive and unpredictable. For that reason, both the franchisor and the franchisee should make every reasonable effort to work out the financial issues outside of bankruptcy. Non-bankruptcy workouts are quite common, including mediation.
“Bankruptcy filings can also be prevented (or at least made less common) by growing a system at a slow and deliberative pace. A very large number of Chapter 11 bankruptcy filings are a result of a system expanding too fast and/or expanding into areas beyond core competencies,” he said.
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