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Could Franchisees Be Toasted by Quiznos Bankruptcy?

When Quiznos filed for Chapter 11 bankruptcy protection back in March, there wasn't a lot of reaction from the public. Sure, those who had heard about the financial woes of the toasted sandwich chain wondered if they could still get their favorite sandwich after the bankruptcy process was finalized. But for a majority of people across the nation, they simply didn't know enough about Quiznos' plight to raise concern.

Unless you were a franchisee that is. As many of our D.C. readers know, franchisees rely on a franchisor to provide marketing support, a supply chain for products and guidelines for operation. But if a franchisor files for bankruptcy, this can change and it can even create problems for franchise owners.

While most people assume that bankruptcy means closing up shop for good, it really does depend on the type of bankruptcy that is filed. In the case of Quiznos, the restaurant chain filed for Chapter 11. Instead of discharging its debt and ceasing to be a company, the Chapter 11 filing allowed Quiznos to restructure its debt so that it could remain in operation. Though this means that the company only owns and operates seven of its 2,100 restaurants nationwide, it also means that franchisees were allowed to stay in operation and did not get "toasted" and shut down during the bankruptcy process.

It's worth noting to our readers that while franchisees in this case were not part of the bankruptcy proceedings, this may not be the case in every filing. Depending on the type of protection that is requested, a franchisee could find their franchising agreement terminated by the franchisor. This might require the help of a knowledgeable attorney, which might be necessary when considering the complexity of franchise law and its interaction with bankruptcy law.

Sources: TIME Magazine, "Quiznos Emerges from Bankruptcy," July 1, 2014

CNN Money, "Dragged into a bankruptcy that isn't yours," Emily Maltby, July 17, 2009

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About Mario Herman

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Based in Washington D.C, franchisee attorney Mario Herman represents franchisees domestically and internationally in negotiation, mediation, arbitration, and litigation with their franchisors. Mr. Herman affiliates with local counsel on an as needed basis. He has practiced nationally and internationally for twenty five years, has an excellent reputation, and has very reasonable rates.

Mario Herman's column is syndicated to Blue MauMau by permission of the author. His insights and information are also available at franchise-law, and International Franchise Law.

Area of Interest
Franchise Operations