Alberta franchisees may be interested in following the latest developments in how a bankruptcy filing by a parent company in the United States could affect them. Avenue Capital Group, the U.S. parent company for the Canadian Quiznos franchisor, filed for Chapter 11 bankruptcy on March 14. The Quiznos chain in the U.S. is struggling with $570 million in debt and is undergoing a restructuring plan. The financial troubles there could spill over the border into Canada.
Quiznos Canada Restaurant Corporation, the Canadian franchisor, was not named as a debtor in the filing. However, Quiznos Canada Holdings, the parent company directly overseeing Quiznos' Canadian operations, has taken on more than $500 million in debt. It is still too early to tell how this may affect individual restaurant franchise owners, but the business and commercial law implications could affect a number of small business owners. There are 371 Quiznos restaurants in Canada, and all but three are franchises.
Additionally, some current and former franchisees are filing a class action lawsuit against Quiznos. Despite all this, many Quiznos franchisee owners say they are not concerned. Although the franchises are independently owned and managed, each one is still interconnected financially through the parent company. When both parent companies hold large amounts of debt, it may eventually trickle down to the individual businesses with adverse effects.
Being a small business owner means starting operations on a shoestring and making enough of a profit margin to eventually pay back any business loans taken out. Franchisees depend in large part on the branding and reputation of the parent company to keep their doors open. A business and commercial lawyer can review a franchise agreement to see if it is in compliance with applicable disclosure laws.
Source: The Global and Mail, "Canadian franchise owners unfazed by Quiznos bankruptcy filing", Joseph Serebrien, April 04, 2014