Mr. Neil Davies’ testimony and answers to an all-party Legislative Assembly of Ontario, Canada standing committee investigating the franchise industry.
I have a background in the restaurant business. I found a beautiful restaurant, not far from here, in downtown Toronto, five-day week, 15-year lease, and it was represented to me that it had high sales, as it certainly had very high expenses. I was shown cash register tapes, which showed me the sales. Fine. I purchased the restaurant, and immediately it appeared to me that I had been defrauded.
At the end of the summer, when the season changed-I purchased this restaurant in the winter-I knew for certain I had been defrauded. There was no uptake in sales. Having been relieved of most of my money, I could not afford to litigate this case, costing about $100,000 to $200,000. So I went to law school. I learned some law, litigation. I went on an on-line law library and I’m prosecuting the three parties involved myself.
This case is about one year old. Until recently, it went better than expected. I often had the sympathy of the courts. After fierce resistance by the other parties, I got hold of those cash register tapes that they had shown me. I discovered that the figures on these tapes differed by almost $400,000 from the figures on the tapes that I was shown and the figures that their agent had given me and figures that the franchisor had given to me.
So we have in Ontario a group of men who are carrying on a racket. They have an engaging, smart, ruthless agent who befriends and entices business people, mostly immigrants, into signing franchise contracts based on fraudulent misrepresentations and an accountant who arranges business loans and remains silent to all this. I’ve garnered evidence from part of the bank’s file that I recently obtained that the banks don’t care because the loans are 75% guaranteed by the government.
Mr O’Toole [Mr. John O'Toole MPP, Durham 1995 - present]: Which bank is this? I want to find where that bank is. I’m serious. What bank is it that the government underwrites the loan? I’m not sure of that.
Mr Davies: This is why we have such an explosion of franchises like Second Cup, for example, and Coffee Time Donuts, because the government is underwriting them. When one gets a small business loan, it’s supposed to be based on the equipment in these restaurants. So far so good. But in the event of default, the government guarantees 75% of the loan. So the banks don’t care.
The proof of this is in information I got from the Royal Bank file. They wouldn’t release the whole file, because they’re nervous. But I was astounded to discover that the financial statement, which is based on the whole loan, was entirely suspicious. When I investigated the statement, I could not authenticate it. In other words, it’s my inference that the statement is forged.
The statement is immediately suspicious to any experienced businessman, never mind a loans officer. This statement wasn’t signed, it can’t be authenticated, you cannot trace its authors and it has a disclaimer on it saying that the figures come from the vendor, the franchisor. No bank would normally give out a loan under such circumstances. They always want an accountant, preferably a CA, to verify the figures. The only reason they’re doing it is that they can hardly lose. They have a lien on the equipment of the restaurant and the government is guaranteeing 75%. It’s a no-lose situation.
Mr O’Toole: The bank wasn’t related to-excuse the humour here-Minister Stewart, was it? It was the business development bank, I guess, which would be federal, right?
Mr Davies: This was not through the business development bank. I got my loan through the Royal Bank. One can get them through any bank. The federal government is the entity that guarantees the loan.
Mr Chudleigh [Mr. Ted Chudleigh MPP, Halton 1995 - present]: Thanks for coming, Mr Davies. Very briefly, in your presentation I think you said that when you purchased your franchise, you did so from an agent or a broker?
Mr Davies: I did. The vendor and the broker were in very close collusion.
Mr Chudleigh: But the broker was the person you actually signed the deal with, or he arranged-
Mr Davies: Initially, the broker. Of course, the contract was with the franchisor.
Mr Chudleigh: OK. Thank you very much.
Standing Committee on Regulations and Private Bills, Legislative Assembly of Ontario, Canada, March 6, 2000 – Bill 33: Arthur Wishart Act (Franchise Disclosure), 2000, Starting after 13:40 pm.