Timmins’ Country Styles safe from closure

The Alliance claims CDS plans to stiff the landlords, causing them to sue. Just 75 lease defaults would bankrupt the realty company. The food services company would then be put under bankruptcy or creditor protection to retain control of the franchise contracts, and later be sold without compensation to the franchisees.

Timmins Daily Press
December 20, 2001

Timmins’ Country Styles safe from closure

Timmins' two Country Style Donuts stores have dodged the bullet which may kill 28 of the franchises across Canada.

The main reason the Timmins stores are safe, said Tammy Magnan, who manages both, is they have been in business eight years — long enough to have no debt.

The parent company or franchiser, Country Style Donuts (CSD), claim they are only closing stores behind in their payments. CSD sent letters to 22 Ontario and eight western franchisees Dec. 6, giving them 15 days to pay up or lose their business and the money invested in it.

Industry analysts say the move is only an excuse to bankrupt one of the five arms-length corporations which make up CSD, so another can be sold more easily.

Even as an excuse it's harsh.

"It's not fair to make it look like the store owners fault," said Magnan, who's mother Doris Magnan owns both stores. "It's a well known fact that new businesses lose money for the first one to two years.

"In the case of an expensive franchise like Tim Hortons, you're looking at a buy in of $500,000," she said. "That can take up to 10 years to pay back."

Her heart especially goes out to Maureen Laframboise in Sudbury, who has been open for 13 years and has been told she'll be shut down. CDS has insisted she install a drive-through to boost sales, but her landlord will not allow it.

Three brothers owning a defaulted store in Angus installed a drive-through as ordered, running them $270,000 for land and construction. When CSD missed the first payment on the new lease, the brothers attempted to contact them, but were told to get a lawyer.

There is method in this apparent madness, said the Canadian Alliance of Franchise Operators in a media release Dec. 11. They say it is common knowledge that CSD has been trying to sell the recently purchased New York based investment firm CAI, as they are unhappy with the financial returns.

CSD's main asset, the alliance said, is the 350 franchise agreements held by Country Style Food Services (CSFS).

Their greatest liability is the lease obligations of Country Style Realty Limited (CSRL), which pays the property leases with franchise money collected by CSFS, including rent, usually as a percentage of sales.

The Alliance claims CDS plans to stiff the landlords, causing them to sue. Just 75 lease defaults would bankrupt the realty company.

The food services company would then be put under bankruptcy or creditor protection to retain control of the franchise contracts, and later be sold without compensation to the franchisees.

The alliance's best information indicates 15-20 stores were closed six to eight weeks ago. A wave of 30 more closures are imminent with 30 more to follow within a month, bringing the total to between 75 and 80. The high level of closures will bring about enough court cases to bankrupt the food services company.

As of Dec. 1, CSD is not making lease payments to the defaulted stores' landlords, although they are legally responsible for the lease payments to the end of its term, usually 10 years.

The alliance said it would be fruitless to take legal action, even if franchisees and landlords could afford it. Litigation can stretch up to four years during which the company can go bankrupt to dodge their financial responsibilities. Free of the encumbrances, they would be free to sell the investment firm as they originally intended.

The present legislation, which was drafted to regulate fair relations between a franchisee and the franchiser, deals primarily with practises before the signing of contracts, rather than after.

Sault Ste. Marie MPP Tony Martin introduced a private member's bill at the end of November to amend the Franchise Disclosure Act. Martin identified the Country Style Donut dispute as another in a recent series of battles in which franchisees are in danger of losing their businesses without adequate protection.


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Risks: Tony Martin, Canadian Alliance of Franchise Operators, CAFO, Intentional franchisor insolvency, Termination of franchisee, mass, Private Members’ Bill, Lease controlled by franchisor, Mergers and acquisitions, Forced renovations, Canada, 20011220 Timmins’ Country

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