NEW YORK: Wendy’s Co says it has terminated the rights of one of its largest US franchisees to continue operating its 314 locations, which the burger chain said could be taken over by corporate or new operators.
On Monday, the company said in a Michigan bankruptcy court filing that it had notified Meritage Hospitality Group Inc (MHG) that it was terminating its franchise agreements over roughly US$147mil in unpaid royalties and fees.
Wendy’s said it had flagged MHG a day before the franchisee filed Chapter 11 last week, claiming that the termination cannot be paused by the bankruptcy filing.
Wendy’s said MHG “must immediately and permanently cease operation of their Wendy’s-branded restaurants” and stop using any related registrations, trademarks or systems.
The company said it would permit MHG to use a temporary licence to operate its restaurants for a short period of time so its locations could be transitioned to Wendy’s corporate or other franchisees.
MHG operates restaurants across 15 states, while Wendy’s has roughly 5,700 locations in the United States.
A copy of Wendy’s Sept 16 termination letter was included in Monday’s court filing.
The letter said MHG failed to pay royalty, advertising and other fees despite Wendy’s “good faith efforts to work with you to resolve the payment default and additional amounts owed”.
Wendy’s entered into a series of agreements with MHG beginning in November after the restaurant operator defaulted under its franchise agreements, MHG chief restructuring officer, Kevin Cleary, said in court papers.
Wendy’s sent MHG a notice of default in October 2025, according to court papers.
Lawyers for MHG didn’t immediately return a message seeking comment.
MHG disputes the termination notice and has said in court papers that its franchise agreements “remain in effect and are property of the bankruptcy estate”.
The dispute could be decided by Judge James W Boyd, who is overseeing MHG’s bankruptcy case.
Generally, filing for bankruptcy prevents creditors from taking action against a bankrupt company over unpaid debt.
The timing of Wendy’s termination letter could be important to the case.
MHG has blamed its bankruptcy on Wendy’s ineffective marketing and discounting pushes along with higher beef prices.
Often, corporations will aid struggling franchisees by letting unpaid royalties accrue. Those arrears can grow to the point that they become a major negotiating lever, said Aaron Allen, chief executive officer at restaurant consulting firm Aaron Allen & Associates.
Technically, franchisees are the indebted party, but they also gain importance with their growing account balance, which will go unpaid if they collapse.
That balance can grow until franchisees can’t repay what has accrued, according to Allen.
“Eventually, you have to go nuclear” and file for bankruptcy, he said.
A handful of large fast-food franchisees have tipped into bankruptcy in the last few years, blaming rising costs after pandemic lockdowns and inflationary pressure that’s pushed more customers to other dining options. — Bloomberg
