Tony McCartney Public Hearing Testimony

…three changes in ownership and two bankruptcies resulted in a trail of disaster for some 60-plus franchisees within my franchise system. Not only did these operators lose their initial investment of around $150,000 to $200,000, but many had further injected capital into their livelihoods through remortgaging their homes etc, causing more hardship. This left a trail of personal bankruptcies, family disruption and stress and even mental breakdowns.


Legislative Assembly of Ontario
March 6, 2000

Public Hearing Testimony
Toronto, Ontario, Canada
Mr. Tony McCartney, franchisee

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

TONY McCARTNEY, franchisee

The Acting Chair (Mr George Smitherman): I'd like to call on the next presenter, Mr Tony McCartney, from the Color Your World Dealer Association. Welcome to the committee, sir.

Mr Tony McCartney: Thank you. Mr Chair, honourable members, ladies and gentlemen, good afternoon. My name is Tony McCartney and I'm from Niagara Falls. I'm a franchisee in the paint and wallpaper industry. My experience in this field goes back some 36 years in three countries: England, the United States, and now Canada. This is my 17th year operating a franchise in Niagara Falls.

I am also a member of the Franchise Sector Working Team and have been since its inception. My franchisor is Color Your World, a division of ICI Canada, who service and operate over 200 stores across Canada, coast to coast. This, in turn, is a subsidiary of Imperial Chemical Industries of Great Britain, the largest manufacturer of paint throughout the world.

Color Your World St Clair Wallpaper was purchased by ICI in 1997, following bankruptcy. Less than one year prior to that, Color Your World, again in a bankruptcy acquisition, was purchased by St Clair Wallpaper. During the five years preceding this, the Color Your World company was traded three times. During these troubled years, I served as president of the Color Your World Dealer Association for two separate terms. The first period was for two and a half years and then more recently for one year. Initially I represented 108 franchise locations coast to coast. Today we number 40.

I congratulate the government for introducing this legislation at this time. Since the Grange report in 1971, this has been long overdue.

In addressing the issue of right to associate, I have to record that during the very difficult time I experienced, the right to associate and communicate freely within our members and with the company was approved and encouraged. Unfortunately, this is not the rule of thumb in some franchise systems today. Again, hopefully this legislation will address this inequity.

I have concern that the fair dealing provision as set out does not identify solutions to an area in which failure or abuse is most common. As mentioned earlier, three changes in ownership and two bankruptcies resulted in a trail of disaster for some 60-plus franchisees within my franchise system. Not only did these operators lose their initial investment of around $150,000 to $200,000, but many had further injected capital into their livelihoods through remortgaging their homes etc, causing more hardship. This left a trail of personal bankruptcies, family disruption and stress and even mental breakdowns.

Today debts of these unfortunates are still being pursued by the company and being paid off by some franchisees who are still in the system and others who were unable to continue. Loss of equity and personal debt varied location by location, but sums of $300,000 to $400,000 were not uncommon. As a personal example, I emerged as one of the more fortunate people. My loss in equity ranged between $80,000 and $100,000.

Fair dealing or consideration was never evident during these times. The policy adopted as that the debt was purchased by the company and has to be repaid. With due respect, I would ask deliberation and consideration to the area of fair dealing, which may alleviate repetition of a instance similar to my experience.

In conclusion, I would like to thank the committee for affording me this opportunity to present my thoughts today. If I am able, I will answer any questions you may have. Thank you.

Mr O'Toole: Thank you very much. It's wonderful to have real-life experience come before us without some sort of ultimate, long-term goal here.

There are two provisions, obviously: The disclosure part, which is central to the whole piece, would have addressed your case, as you described a company that had three or more failures and other failures as well, and the fair dealings part would have addressed it too. If there were a proper schedule of what should be disclosed, its financial disclosures and everything else, wouldn't that become part of the fair dealing provision? Would that have solved your own case that you described of losing $80,000 to $100,000?

Mr McCartney: Not really, Mr O'Toole, because now it's part of history; these bankruptcies and the change of ownership are part of recent history. I was in the system before that. It's record now, but for anybody who came before that time—as of now, if they franchised all that, they would know the history of instances like this. Their record is placed up front, and you make your judgment on purchasing from that history. So will those things change?

When I came into the system, the franchise was sound. It was a good business to be in. It wasn't for some seven or eight years after that when all these things started to fall into place. It was bought and sold, bought and sold; it was leveraged far too much, and then following bankruptcy to bankruptcy.

Mr O'Toole: You experienced it; I'm trying to understand it. What I mean is, the previous presenters also alluded to the fact that markets change, conditions change, and what I would deem to be appropriate disclosure today may turn out to be the last successful day I had. As situations and interest rates and other things change, material matters change, the relationship is a statement of what happens today when you sign on to this business arrangement. Because of a whole bunch of economic and other factors, some of which may or may not be in my own control, our association deteriorates for some reasons.

What I'm trying to say is that the disclosure initially, when the franchisee decides to sign on the dotted line, if that is fully accountable that day that we're talking about and the previous years today—that won't help you, obviously; that's water under the bridge, so to speak. But today, would this provision in this legislation help prospective franchisees from today forward to deal with what you dealt with?

Mr McCartney: Definitely, up until the time they make the decision. It helps them in making the decision. Once the decision is made, that clause is really put to one side and fair dealing is there for evermore after that.

Mr O'Toole: That's reasonable. I appreciate that.

Mr Gill: This might be a repeat of some of the questions Mr O'Toole might have asked, but since you're experienced and you were the president of the association of the franchisees as well, with this franchise chain, what was the main root cause, in your mind, of the problem and how would this bill, if it was enacted then, have alleviated some of these problems?

Mr McCartney: As Mr O'Toole confirmed, the history of these transfers of the company, the first three times they were bought and sold, bought and sold, bought and sold. As I say, the reason the company went the route it did was because it was leveraged too much in the end. Yes, this document would state that and then I, as a prospective franchisee, would see that and then I would make my decision whether I would go into it or not.

The only thing is, as of today this company is now under the flag of ICI, which is one of the most stable companies in the world. The document would relate that. Even though it may show the history of what has gone on in the past, that's irrelevant to me because the people in charge at that time are not in the business now, it's not leveraged now.

Mr Gill: You're basically saying it doesn't matter what it says in the disclosure agreement as long as the backup company is a strong company. Is that what you're saying?

Mr McCartney: In my case, yes. I mean, it's very stable and that would influence my decision.

Mr Martin: To get back to the questioning that Mr O'Toole was on to, for you the disclosure part of this legislation really has no—

Mr McCartney: Has no bearing.

Mr Martin: No bearing. But there are literally thousands of franchisees out there across Ontario today who are in need of some further relationship regulation. You participated, you said, on the working team.

Mr McCartney: Right.

Mr Martin: What was your position when you saw that the government was only going to do the disclosure piece and they weren't going to go any further? What was your immediate reaction? What would be, in your mind, the most important things for us to consider as we go down this road now and try to, in my view, improve this legislation so that it does cover the franchisees who are already out there doing their best? Given the nature of the world we're in, where companies buy companies and there are mergers and all kinds of things going on, what would be the things you would see as important?

Mr McCartney: This is why I stated that I think it's important that the fair dealing clause be maybe re-tuned or fine-tuned or whatever you'd like to call it.

Mr Martin: Any definition of that?

Mr McCartney: No specifics. No, it's hard for me to say. But this would have helped our company, as I say, with these huge losses by franchisees, which occurred because of supply problems during those bad times. Supply problems were horrendous. Consequently, we were unable to obtain materials to sell. Debts rose. At the end of the day, there's no consideration on those debts.

Mr Martin: So you're left holding the bag.

Mr McCartney: Exactly.

Mr Martin: Do you want to define the supply problem for me a little bit?

Mr McCartney: Fairly early on, the suppliers to the corporation obviously got wind of the financial difficulties the companies were getting in, so they were a bit hesitant in supplying raw materials—titanium dioxide etc. Obviously, this caused a supply problem when it came down to us. I would quote supply issues as much as 55% to 60% zero on your order each week. It made it very difficult to carry on business. We asked several times that we be excluded from buying from them, if we could go out to outside suppliers, if we could get an outside paint manufacturer to make product for us. We were denied. We did go outside unofficially to others, even retail stores. I personally went out to retail stores nearby, buying product, bringing it into the store just to satisfy customers. We still paid our fees on it, but that was the situation.

The Acting Chair: Thank you very much for your presentation.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript:

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada

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