Wendy’s Co has terminated the franchise rights of Meritage Hospitality Group Inc (MHG), one of its largest U.S. franchisees, affecting 314 Wendy’s locations across 15 states. The decision was disclosed in court filings related to MHG’s Chapter 11 bankruptcy case in a Michigan court. Wendy’s cited approximately $147 million in unpaid royalties, advertising fees, and other charges as the reason for ending the agreements.
Wendy’s informed MHG of the termination on September 16, a day before the franchisee filed for bankruptcy protection. The company stated that the termination is not subject to delay or reversal due to the bankruptcy filing and ordered MHG to immediately stop operating Wendy’s-branded restaurants and cease use of related trademarks, registrations, and systems. However, Wendy’s indicated it would allow MHG a temporary license to operate the restaurants briefly to facilitate a transition, with plans for Wendy’s corporate or other franchisees to assume control of the affected locations.
MHG has disputed the termination notice in court, contending that its franchise agreements remain valid and constitute property of the bankruptcy estate. The case is before Judge James W. Boyd, who will determine the enforceability of the termination in light of bankruptcy protections which generally bar creditors from taking collection actions during insolvency proceedings.
The dispute follows a series of defaults by MHG under its franchise agreements beginning last year. Wendy’s issued a notice of default to MHG in October 2025, followed by subsequent efforts to resolve payment delinquencies. According to court statements from MHG’s chief restructuring officer, Kevin Cleary, the company encountered difficulties attributed in part to Wendy’s marketing strategies, discounting policies, and rising beef costs, all of which MHG said contributed to its financial strain.
Industry experts note that franchisors sometimes allow unpaid royalties to accumulate as a temporary concession to struggling franchisees, creating substantial arrears that may eventually become a negotiating tool. Aaron Allen, CEO of a restaurant consulting firm, explained that as these balances grow, they can become unsustainable, prompting franchisees to seek bankruptcy protection as a last resort. In recent years, several large fast-food franchise operators have filed for bankruptcy, citing challenges such as increased operating costs and shifts in consumer behavior following the COVID-19 pandemic and inflationary pressures.
Wendy’s currently operates approximately 5,700 locations in the United States. The outcome of the legal dispute with MHG could have broader implications for franchisor-franchisee relations, particularly regarding the handling of debt defaults and operational transitions during bankruptcy proceedings. Legal representatives for MHG did not immediately respond to requests for comment.