Email to Hon. David Emerson, Industry Canada, Government of Canada

It is common understanding within the franchise industry that some systems are created only to act as a conduit for SBL funds.

Potential franchisees, many times new to Canada, perform their due diligence and, in part, rely on the credibility of the federal government and its regulated financial institutions. The seller, sometimes a third party consultant, partners up with a specific bank officer and the money flows, even if the "front door" of the same bank says no to the loan.

And the cheque is out to the franchisor and not the borrower.

Email to Hon. David Emerson, Industry Canada, Government of Canada

To: Hon. David L. Emerson, Ministry of Industry, Canada
From: Les Stewart, CAFO
Date: February 9, 2005

Industry%20Canada%20franchising.jpg

The Small Business Loan, SBL, is an extremely important source of funds for small- and medium-sized business. I have had two in my business career and they have absolutely assisted in me meeting my business and personal goals.

It is with in mind that I write to you today. I want to work with the Ministry of Industry to ensure the program objectives are met, well into the future by dealing pro-actively with what I see as a threat.

Canadian Franchising
Good franchising is the most efficient, effective distribution system ever invented. Some claim that it is the greatest invention in western capitalism since the corporation. Good franchising is so much better than independent small business operation and bad franchising is so much worse.

The overwhelming source of debt financing for the Canadian franchise is provided through the Canadian Small Business Financing Act. In a recent case, over ninety-three per cent of the purchase of a franchise was from a small business loan, SBL.

The franchise relationship has been characterized by an imbalance of information and power. Vulnerability is created by: one-sided, incomplete contracts, weak or no government oversight, inability to afford private action, etc. Some stakeholders in the franchise industry exploit this opportunism "perfect storm".

I have attached a copy of a news release from the then MPP Tony Martin indicating his concerns. I was an expert witness in the public hearings that led up to the Ontario Arthur Wishart Act (Franchise Disclosure), 2000.

Canadian%20Alliance%20of%20Franchise%20Operators%20Les%20Stewart.jpg

Systemic Fraud
There is substantial evidence to indicate some Ministry of Industry SBL stakeholders systemic are increasingly practicing white-collar crime. While inappropriate franchise lending due diligence clearly shows up in ministry Annual Reports, I deal with the nightmarish consequences on an increasingly daily basis.

For example, one of my clients has a SBL for what he believed was $160,000 worth of equipment. Within one year, it was independently appraised for $40,000. He and his family are experiencing losses of $100,000 a month for the last fifteen months.

It is common understanding within the franchise industry that some systems are created only to act as a conduit for SBL funds.

Potential franchisees, many times new to Canada, perform their due diligence and, in part, rely on the credibility of the federal government and its regulated financial institutions. The seller, sometimes a third party consultant, partners up with a specific bank officer and the money flows, even if the "front door" of the same bank says no to the loan.

And the cheque is out to the franchisor and not the borrower.

Franchisor termination threats, personal and corporate bankruptcy, unemployment and shame keep them on desperate financial hamster wheel much longer than comparable independent businesspeople. Of course, the SBL monthly payments aids in enforcement.

Police fraud investigations of two high profile, national systems appear to be ongoing.

In summary, franchising has been recognized as a unique and opportunistically-prone business relationship since the mid 1950s in North America. SBL funds are being used to perpetrate a sophisticated form of fraud, directly on franchisees and indirectly on all Canadian citizens.

They do it because the directly injured party is trapped in a predatory relationship with a franchisor collaborator. What unsophisticated small business investor would even suspect being a victim of a systemic, multimillion-dollar near money-laundering scheme that appears to be sanctioned by the Dominion of Canada?

Offer
How the franchise industry works in real life is not widely known. Most participants conduct themselves in a lawful and ethical manner. Without regulatory discernment, they suffer market share declines at the hands of unscrupulous players.

Since 1998 the Canadian Alliance of Franchise Operators, CAFO has acted to protect franchisee investments. While it is true CAFO is largely a dormant membership entity, we have access to the most current and reliable academic research, memberships in the largest independent franchisee associations and a record of supporting fair franchise practices.

I am more than willing to explain the basic mechanics of what we have found and work with the Ministry in reducing its incidence

I believe loan consumers (franchisees) should be at the table in the administration of the program. Also, my qualifications as a consultant are listed on our website. I would hope the Ministry to be open to educating potential franchise owners and perhaps working toward industry standards.

Thank you.

Les Stewart
Canadian Alliance of Franchise Operators
705-737-4635 Tel
ten.ofac|trawets.sel#ten.ofac|trawets.sel
www.cafo.net


Tony Martin, MPP, Sault Ste. Marie
New Democratic Party
News Release
Legislative Assembly of Ontario, Canada

April 4, 2000

INVESTIGATE FRANCHISE ASSOCIATION ABUSES: MARTIN

TORONTO – The Consumer and Commercial Relations Ministry should investigate the Canadian Franchise Association over its failure to help Ontario franchise holders, NDP MPP Tony Martin said today.

The CFA is advising the Conservative government on proposed changes to provincial laws governing franchise agreements. But the association is under fire from hundreds of its own members for its indifference to their complaints, the NDP Critic for Consumer and Commercial Relations said in the Legislature today.

“The CFA has been of no help to many hundreds of entrepreneurs who lost their shirts in shoddy franchise deals,” Martin said. “Instead of taking the CFA’s advice this government should be sending in ministry staff to thoroughly investigate this association’s failures.”

Martin raised the case of Brenda Hope, a mother of two from Coldwater who lost $90,000 as a Chemwise Inc., franchisee. For more than a year, the CFA has refused to look into Hope’s complaints, although it endorsed Chemwise as a member.

Similarly, the CFA has refused to accept a registered letter from Bulk Barn franchisees who have a series of complaints against the franchisor. Martin was also refused when he tried to deliver the letter. The Sault Ste. Marie MPP called on Consumer and Commercial Affairs minister Bob Runciman to act now to protect small businesspeople.

“Perhaps the minister can convince the CFA to live up to its responsibilities to mediate franchise disputes. If he can’t, we need a full-scale probe of this group. It’s the least we can do for hard-working families who lose everything in dubious franchise deals,” Martin said.

The MPP has proposed his own legislation, Bill 35, that is far tougher than the government’s Bill 33. The Martin Franchise Bill would require full-disclosure of franchise contracts, a dispute resolution mechanism, the right to associate and the freedom to source products outside of the chain when not trademark related.

-30-

Information: Gil Hardy at (416) 325-7118 or Robin Cantin at (416) 325-7324

www.ontariondp.on.ca

++++++++

cc: Suzanne Hurtubise
Deputy Minister, Ministry of Industry

Carole Swan
Associate Deputy Minister, Ministry of Industry

John, McBride
Assistant Deputy Minister, Ministry of Industry


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