What-Franchise-Issue-20.1

Is there any benefit to the franchisee? The director’s guarantee is really set up to protect the franchisor from financial loss. For the franchisee, the advantage is simply having access to the franchise brand they want to trade under. However, seeing as director’s guarantees are a fairly standard practice within franchise agreements, some reassurance can be taken that your chosen brand is operating above board. “You’re not going to be joining a network of rogues that are just going to turn around and do what they want any time because everybody has this responsibility to adhere and be conducting the brand in a uniform way,” says Fiona. “That should give a franchisee some comfort that they’re not the only one in among this.” How enforceable is a director’s guarantee? If all goes pear-shaped with your business, a director’s guarantee is a relatively straight forward to process. “Most guarantees are unlimited, and the franchisor would generally not have to take steps to enforce any of its rights against the franchisee before pursuing the director,” explains Emily. “It means that the director’s personal assets (including their home) could be targeted if the franchisee fails to meet its commitments. In a worst-case scenario, it could mean bankruptcy for the director.” Essentially, it’s fairly easy for the director’s guarantee to be acted upon, and it’s not a situation where you would have to wait for a court hearing to proceed. Don’t get caught out by insurance Many franchisees assume insurance can help out if they’re having trouble navigating or protecting themselves from the director’s guarantee. However, it’s important to read the fine print. You could pay extra for insurance each month which may include legal cover, but does it cover legal disputes? If not, you’ll unlikely get any insurance help to deal with a disputed director’s guarantee. Some insurance companies may cover director’s guarantees, however it’s important you choose a reputable provider and choose wisely. They may be able to cover up to a percentage of the risk, but do ample research and expect fees. Tell your partner If your assets are jointly owned, it’s essential to inform your partner that you intend to sign a franchise agreement that includes a director’s guarantee. “A properly advised franchisor will insist that the director informs their partner, that they take independent legal advice and that the independent lawter confirms to the franchisor that they have advised the partner,” says Iain. Your partner should understand the risk to your assets. Why you need to resign from your director’s guarantee If you leave the business, you need to leave your director’s guarantee by officially resigning through legal documentation. This is separate to your resignation from your job role at the company. If you don’t do this, you’ll still be liable despite no longer being involved in the company – an awful way that some people have been caught out. “For you to no longer have any liability under the guarantee, you need to be released from it. It has to be discharged,” says Fiona. “You would need to approach the franchisor to have the guarantee expressly released and it needs to be done in a legal way by a deed of release. And if that doesn’t happen, you remain liable under the guarantee until it is discharged.” “Even the bigger, multi-unit franchisees get asked for personal guarantees by the franchisor and if you don’t provide the personal guarantee, you’re not going to get the franchise” – Iain Bowler, partner at Freeths 32 WHAT FRANCHISE Issue 20.1 Ins ights