Franchisees of Tea Masters in bitter dispute with owners

Levitt said his clients are not paying franchise charges because “they realized they were paying royalties to an insolvent company. “They were not getting services anyway and they realize they have to save their own skin,” Levitt said…Levitt said until the franchisees are consulted they will oppose any restructuring proposal the company may present. “We are Tea Masters, our franchisees are,” he said. “There really is no franchisor functioning in any real sense.”

The Toronto Star
May 13, 1993

TeaMastersMariaHuska.jpg

LOCKED OUT: Maria Huska, left, with employee Kitty Lam, locked out of their store, get locks changed yesterday.

Franchisees of Tea Masters in bitter dispute with owners
Peter Small and Daniel Girard

Owners and franchisees of Tea Masters Ltd. have locked horns – and doors – in a bitter battle over royalties as the beleaguered restaurant chain fights for survival.

Officials of Tea Masters changed locks and posted security guards at up to a dozen Toronto area outlets starting at 3 a.m. yesterday in an unsuccessful bid to wrest control of the stores from franchisees.

The company claimed franchisees were withholding royalties and other service fees they’re obliged to pay under their franchise agreements.

But by mid-afternoon, all franchisees had re-opened for business after regaining possession of their eateries.

Ned Levitt, their lawyer, persuaded landlords and police to let them back in.

Four corporate locations were unaffected by yesterday’s move.

Levitt said his clients are not paying franchise charges because “they realized they were paying royalties to an insolvent company.

“They were not getting services anyway and they realize they have to save their own skin,” Levitt said.

Tea Masters received protection from creditors March 5, when it filed a notice of intent to reorganize its affairs under the Bankruptcy and Insolvency Act.

According to a preliminary list of creditors, Tea Masters owes 96 lenders and suppliers $1.7 million.

Tea Masters must file a restructuring plan by May 20.

“They broke into our stores,” said Maria Huska, president of the Tea Masters Franchisees Association, who called a locksmith to help her break back into her store.

“You can’t do this to innocent people and get away with it,” Huska said.

But Tea Masters president and founder Paul Manousos said the company moved to take possession of the stores after issuing a termination notice under terms of their franchise agreement.

The notice of termination received by one franchisee cited royalty arrears of $9,000 and advertising contribution shortfalls of $3,000 as the reason for the move.

“We did what we thought was legally right to do,” Manousos said.

Levitt said until the franchisees are consulted they will oppose any restructuring proposal the company may present.

“We are Tea Masters, our franchisees are,” he said. “There really is no franchisor functioning in any real sense.”


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