A large franchisee is built one approval at a time, and the approvals are usually announced. In December 2022, Meritage Hospitality Group said it would buy a group of Midwest Wendy's restaurants with about $65 million in annual sales. The press release noted, as these releases always do, that the deal was "subject to customary due diligence and standard franchise approvals." It also mentioned that Wendy's had given Meritage an award that year for "Visionary Growth & Expansion." Five months later Meritage bought 25 more Wendy's in North Carolina and Virginia. That gave it 385 restaurants in 16 states, and it had promised to build 52 new ones by the end of 2025. This is how the biggest operators in franchising get that way, with the brand's blessing and often its applause.
On Thursday, Meritage filed for Chapter 11 in federal bankruptcy court in western Michigan. It now runs 314 Wendy's, after closing about 60 earlier this year. It owes $150 million to City National Bank, which declared that debt in default last year. Its largest unsecured creditor is Quality Is Our Recipe LLC, the Wendy's franchising company, which is owed $24.9 million in deferred franchise fees.
Franchisors like to describe a transfer or acquisition approval as a check on the buyer's skill. Does this operator run clean restaurants, pay royalties on time, follow the system? Fair enough. But consider what a franchisor is doing when it approves yet another deal by an operator that has already done 27 of them, sets that operator's building schedule and gives it an award for growing. It is deciding how much risk the operator can carry. That is a credit decision. I think franchisors should stop pretending otherwise, and should make it the way a lender would: by testing each deal against the brand's own worst year, not the operator's best one.
Franchise Approvals Behind This Year's Bankruptcies
Meritage is not the only example this year. In 2023 a company called Superior Star bought about 93 Hardee's restaurants from another franchisee for $15 million. It filed for Chapter 11 on July 9 with 59 restaurants left. Its chief executive told the court that "almost immediately after the acquisition of the restaurants, the debtor was forced to absorb extensive and unforeseen deferred maintenance and repair expenses, unpaid taxes, and other latent liabilities." He was blaming the seller, but his complaint raises a fair question about what anyone on the approval side looked at.
The Integritty Group, which runs 41 Qdoba restaurants, took out a $20 million loan in April 2025. Late last year it was planning 10 more Qdobas, and its website set a goal of more than 100 units by 2030. In August its bank sued, alleging a default with about $18.3 million still outstanding. Qdoba's statement read: "Qdoba is not a party to this complaint and has no comment on the allegations."
That is accurate. It is also the problem.
The clearest case of approval as underwriting is older. In 2012, Burger King sold 278 of its own restaurants to Carrols and pre-approved it to operate 1,000. Nobody hands out a thousand-unit pre-approval on the strength of a clean kitchen. It was a line of credit in everything but name.
The Case That Franchisors Aren't to Blame
The other side of this argument is strong. Bradford Sandler, a restructuring lawyer at Pachulski Stang Ziehl & Jones, counts at least 10 large multi-unit franchisee bankruptcies this year, across six brands. "That variety and volume demonstrate that this is systemic, not cuisine or brand-specific," he told Restaurant Dive this week. Food and labor costs are up 36% since 2019, and franchisees typically clear 3% to 5% before taxes. Meritage itself puts its troubles down to "system-wide pressures" on the Wendy's brand. Nor do franchisors set anyone's interest rate. Banks do, and they take their security first, which is why Wendy's is standing in line behind City National Bank.
And a franchisor that tries to rein in a big operator can end up paying for it. On Wednesday, Restaurant Brands International, which owns Burger King, agreed to pay $18.2 million to settle a shareholder suit over its roughly $1 billion purchase of Carrols. The plaintiffs argued that Burger King used its power as franchisor to push Carrols into selling at $9.55 a share, in part by refusing to let it buy more restaurants. RBI denied any wrongdoing and said the deal gave Carrols and its stockholders "substantial benefits."
All of that is true, and none of it lets the franchisor off. If the failures are systemic, someone owns the system. Meritage blames the brand, and the brand belongs to Wendy's, whose same-store sales have now fallen for six straight quarters. Its chief executive, Robert Wright, warned investors on Aug. 7 that weak sales would "pressure the franchisees and create a little bit of fragility there." Six weeks later, one of its largest franchisees filed. Either the operator took on more than it could carry, which the approvals were supposed to catch, or the brand faltered, which the franchisor was supposed to prevent. Both roads run through the franchisor.
Carrols, meanwhile, shows that the approval lever is real, and that it gets expensive when it is pulled late. Refusing more growth to an operator you once pre-approved for 1,000 restaurants looks like a squeeze. Saying "not this many" at the start looks like underwriting. The lenders already see it that way. "The franchisors that are realistic about their remodel and development schedules, given the environment, and are in tune with the health of their franchisee base, are always the easier ones to lend to," Kevin Contat of Old National Bank told Franchise Times in July.
How the Next Franchise Approval Should Work
The fix is an approval memo that answers what a banker would ask. What will the buyer owe in total after this deal? What remodels and new units is the franchisor itself asking for, and are they counted as the debts they are? Sandler's complaint is that "remodel mandates have too often been treated as fixed obligations rather than negotiable ones," and the time to negotiate them is before the signature, not after the default. Above all, what does the operator's cash flow look like in a bad year for the brand? There is no need to invent one. Wendy's same-store sales are down more than 10% on a two-year basis, so the brand has already run the stress test. A deal that can't survive the brand's own recent history should be approved smaller, with fewer build commitments, or not at all.
Wendy's said this week that it will "evaluate each situation on a case-by-case basis to identify the best and most sustainable path forward." That is the right instinct, applied at the wrong end. Case by case is what an approval is for. In 2022, a Meritage press release put the Wendy's name beside the words "Visionary Growth." This week Wendy's turned up again, at the top of the unsecured creditors on a bankruptcy petition, under its corporate name: Quality Is Our Recipe LLC.
