Movenpick power struggle nears resolution

Things came to a head in October, when Mr. Reichert proposed acquiring some of the restaurants. At the time, the company was considering becoming a franchisor by selling eateries to franchisees that would run them under a licensing agreement…But some directors balked and said Mr. Reichert planned to buy the best restaurants and leave the "dogs" such as the Boston location, according to court documents.

The Globe and Mail
June 14, 2004

Movenpick power struggle nears resolution
Reicherts expected to relinquish control
Paul Waldie

The company that runs the Movenpick restaurant chain in Canada and the United States is close to ending a bitter struggle for control with its former chief executive officer.

Toronto-based Richtree Inc. has been embroiled in conflict since last October, when the board of directors suspended Jorg Reichert, the CEO, and his wife, Marianne, an executive vice-president.

According to documents filed in court, the infighting has caused the company serious financial problems, including defaulting on a bank loan and failing to pay some taxes on time.

Mr. Reichert and Colin West, the new CEO, declined comment. But a source close to Richtree said a resolution is expected this week that will likely see the Reicherts give up their controlling interest. In a separate issue, the company is also expected to announce the settlement of a $300-million lawsuit against its Swiss-based parent, Movenpick Holding AG.

If there is a resolution, it will end a bizarre saga that has seen Mr. West fired and rehired within two days, vicious name calling on all sides and allegations filed in court of widespread financial wrongdoing. None of the allegations have been proved in court.

The directors, who include Senator Trevor Eyton, hired a forensic accountant who filed a report in court that said the couple allegedly took $1.2-million in unauthorized payments and tried to improperly acquire some company restaurants.

The report, by James Yakimovich, also claimed the Reicherts used company coffers to pay for a host of personal expenses, including hiring people to put up Christmas lights at their home at a cost of $20 per hour. The report also alleged that Mr. Reichert intentionally ruined a proposed joint venture between Richtree and Canadian Tire Corp. Ltd. out of self-interest.

"In my considered view, the events leading to the suspension of Jorg Reichert … reflect the most wanton disregard of fiduciary duties by an officer that I have personally witnessed in my career," company director John Nestor said in an affidavit filed in court.

The Reicherts have denied any wrongdoing and said all payments were authorized by Mr. West, who was chief financial officer until the suspensions. In court filings, they claimed they are being treated like "common criminals" and they have pushed for a shareholders' meeting to elect a new board (the couple control 78 per cent of the company's multiple voting shares).

"Who gave you as board members the right to suspend us for your own reasons and to start a defamation campaign against the Reicherts by locking them out of their offices and restaurants and not allowing them to speak to their own people?" the Reicherts said in a letter to the board that was filed in court. "Shame on you!"

Mr. Reichert, who was born in Germany, has been a driving force behind Movenpick since he joined the business in Zurich in 1968. He came to Canada in 1982 with Marianne to run the Toronto restaurant. They acquired part ownership of that restaurant a few years later.

In 1996, the couple obtained the rights to Movenpick in North America and formed Richtree, which they took public on the Toronto Stock Exchange a year later at $6 a share. By that time, the chain had $52-million in annual revenue, a profit of nearly $600,000 and 13 restaurants in Toronto and Ottawa. The couple planned to open 10 restaurants and 18 outlets in grocery stores across North America.

But the expansion did not go as expected and the company had to close several venues. Today, it operates 15 restaurants in Toronto, Ottawa, Montreal and Boston. But sales have dropped nearly 20 per cent in the past three years to $53.8-million and Richtree lost $5.6-million last year. Its share price sank as low as 8 cents on the TSX last fall, but has since recovered to around 25 cents.

According to allegations filed in court, part of the problem was the Reicherts' autocratic management style, which "created an air of intimidation." Mr. Reichert was also allegedly paranoid about the company's Swiss parent and even believed it was manipulating Richtree's share price, the report said.

The forensic report claimed the Reicherts routinely decided their own compensation and ignored the board's compensation committee. For example, when the committee met last September, after the end of the company's fiscal year, Mr. Reichert said he had already been paid an annual bonus, the report alleged.

Record-keeping also was erratic, the report said, and Mr. Reichert sometimes calculated bonuses on handwritten notes. According to court documents, the Reicherts allegedly earned more than $1-million annually, but reported far less than that in securities filings. Mr. Reichert even allegedly gave himself an unauthorized $170,000 payment last summer just as the company was facing declining sales because of the SARS outbreak.

The Reicherts deny the allegations and insist they have always acted in the company's best interests.

The dispute with the board escalated early last year, shortly after the company's auditors expressed concern about Richtree's financial reporting, according to documents filed by Mr. Reichert. A few months later, Richtree defaulted on a loan with the Bank of Nova Scotia and Mr. West alleged that Mr. Reichert delayed dealing with the issue.

As the year wore on, "the directors became concerned with the welfare of Richtree under the management of Reichert," Mr. West said in an affidavit. The directors "noticed a dramatic change in the behaviour of Reichert during this period. Indeed, the directors became fearful of the apparent instability of Reichert."

For his part, Mr. Reichert said he felt under attack by the board and blocked at every turn.

Things came to a head in October, when Mr. Reichert proposed acquiring some of the restaurants. At the time, the company was considering becoming a franchisor by selling eateries to franchisees that would run them under a licensing agreement. Mr. Reichert felt his plan would inject needed capital and help that process along.

But some directors balked and said Mr. Reichert planned to buy the best restaurants and leave the "dogs" such as the Boston location, according to court documents. The board also said he could not negotiate a deal with himself and would have to step down temporarily.

Mr. Reichert refused, and on Oct. 26, he fired Mr. West, calling him "insubordinate" and an embarrassment. He also asked the board to call a special shareholders meeting to elect new directors.

The directors were furious and rehired Mr. West the next day. They also suspended Mr. and Mrs. Reichert with pay, changed the locks on the executive offices and posted a 24-hour guard.

The Reicherts got the notice of their suspensions, and an order to stay away from the company, at their home around midnight on Oct. 28. "We are still under shock and no one we have spoken to could understand or find any logical explanation why Richtree's board members made so many silly moves which are absolutely contrary to the interest of the company," they said in a letter to the board last December. They went to court to force the company to hold a shareholders' meeting, but the action was dismissed.

The Reicherts have insisted the company's finances have suffered with their departure and claim Richtree owes them at least $800,000. Mr. Nestor said the suspensions have boosted morale among employees and suppliers and made it easier to work with the bank. The company has recently renegotiated the Scotiabank loan and it is considering selling restaurants to raise cash. It also announced plans to open a restaurant in Kingston, under a franchise agreement.

"In short, Richtree has been made immediately stronger by the removal of Reichert and the insertion of board-supported management," Mr. Nestor said in his affidavit.

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