A recent British Columbia Supreme Court decision highlights the importance of properly documenting any changes to the franchisor's corporate structure. In Fruiticana Produce Ltd. v. 575760 B.C. Ltd., the court considered (among other issues) whether the current franchisor could collect the debt owed to it by the franchisee and its guarantors. During the term of the franchise agreement, the franchisor had assigned the debt owed by the franchisee to a new company related to the franchisor. However, the franchisor failed to assign the franchise agreement and its related guarantee agreements to this new company.
While the court ruled that the franchisor was unable to recover debts owed by the franchisee to the new franchisor company from the guarantors, the franchisor was able to recover debts from the franchisee. Franchisors must take care to ensure that any changes to their corporate structure are reflected in franchise agreements and related documents through the proper assignment of the franchisors' interests.
