Franchisee Insolvency

Although franchised businesses have a far stronger track record of riding through the tough times, the reality is that perhaps for the first time in many years franchisors will need to consider the solvency of some of their franchisees. The health of the whole franchise network requires franchisors to put strategies in place to detect signs of financial stress at the earliest possible stage, and to act quickly to minimise losses should a franchisee be unable to pay its debts as and when they fall due. If they do not do so, the impact can spread beyond the franchisee to supplier relations, consumer perceptions of the network and the financial position of the franchisor.

If a franchisee cannot pay its debts "as and when they fall due", the franchisee will be deemed to be insolvent under law. This has various consequences, including that any moneys paid to a supplier or the franchisor after this time may be characterised as "preference payments", clawed back by a