A sad, fishy failure

2014-07-13 15:00

The National Consumer Commission (NCC) is conducting an in-depth investigation of Traditional Brands and its chain of franchises after a raft of complaints from franchisees.

About 17 franchisees, suppliers and landlords across the country have obtained judgments and cost orders totalling R4.2?million, excluding interest and the costs of suits, against Traditional Brands companies and associated directors.

Traditional Brands operates the Old Fashioned Fish and Chips and Chingos Chicken brands.

Some franchisees claimed their deposits back after the group reneged on agreements. Landlords have claimed that rent has not been paid and suppliers have claimed that bills have not been paid.

In an interview this week, Thezi Mabuza, the deputy commissioner of the NCC, told City Press the commission had received separate complaints related to:

»The franchiser’s disclosure document being ­dishonest, where information changes from one ­person to another;

»Incoherent franchise agreements; and

»Old Fashioned Fish and Chips not complying with the contract cancellation period provided for in the National Consumer Protection Act.

“We looked at the contract itself, the disclosure ­document and the cancellation period. We are now going to investigate this matter in detail,” said Mabuza.

The commission’s sights are set on the franchise owner, Emilia de Sousa, and her business practices.

The commission held several meetings with De Sousa to try understand her noncompliance so “we don’t actually kill the franchise”.

She added: “There was [a] commitment from the owner [De Sousa] to refund the deposits.”

She said this has not been done.

While Mabuza believes Old Fashioned Fish and Chips is a great concept, she thinks the issues lie with a dishonest owner as well as the governance part of the business.

“Until we go in and investigate deeply and really analyse, we won’t know for sure,” she said.

For now, the investigation will continue. The NCC will then approach the consumer tribunal – which is “quasi-judicial” – with the evidence and seek an order against the group.

The tribunal will have to make its own decision as with any other court, but it has the power to impose an administrative fine of not more than 10% of the group’s annual turnover during the preceding financial year, or R1?million, whichever is the greatest.

Failure to comply with an order by the tribunal carries a fine or imprisonment of up to 10 years.

Meanwhile, franchisees and other creditors are queuing up as their orders against Old Fashioned Fish and Chips go unheeded.

One of them, Robert Magwaza, obtained a default judgment of just more than R330?000 against the franchiser after his franchise was sold on his behalf.

“Old Fashioned Fish and Chips did not satisfy the client’s judgment debt, interest and costs,” said Magwaza’s lawyer, Sizilizwe Ngcingwana.

“We commenced execution proceedings by attaching movable goods, and we discovered these goods were already attached by other creditors owed money by Old Fashioned Fish and Chips.”

Creditors have now filed a liquidation application, which Ngcingwana says his client might join.

The court file for the liquidation application was lodged against Old Fashioned Fish and Chips’ distribution centre by suppliers who were not paid for delivering frozen fish.

It paints a picture of a company apparently unable to pay suppliers because of its paranoia relating to a former employee, who the company was pursuing on “very serious criminal charges”, according to an email from forensic consultant Paul O’Sullivan ­attached to the founding affidavit.

O’Sullivan was ­instrumental in nailing rotten police commissioner Jackie Selebi. He told City Press his firm was appointed in January to investigate fraud against an employee of Old

Fashioned Fish and Chips’ distribution centre.

“We investigated, found evidence and opened a case, and the matter is now in the criminal justice system,” he said

The liquidation application was filed after Old Fashioned Fish and Chips failed to honour a final letter of demand for almost R1.2?million, which the frozen fish suppliers believe it cannot pay in any case because it does not own any immovable property, or have enough stock or movable property to service its debt.

When asked about this, Mabuza said the NCC would work with other regulators such as the Companies and Intellectual Property Commission to ensure ­Traditional Brands’ directors did not get away.

De Sousa did not respond to requests for comment.

What caused the crisis

According to O’Sullivan, Old Fashioned Fish and Chips was starved of cash due to the actions of a former employee whose name is known to City Press.

“During the course of the past two years, [the employee] brought about a situation, whereby he had control over the distribution centre – which is the cash cow

of the business – generating R20?million in cash flow each month and?...?repeatedly sabotaged the franchise business to the extent of telling the franchisees not to pay their account to the company, but to stay up to date with their payments to the distribution centre.

“This resulted in a situation whereby franchisees did not pay their fees, resulting

in the franchise company falling into debt,

not being able to honour its financial commitments to market the fish and chip shops and meet its debts, which, in my opinion, resulted in a cashflow crisis, which became a vicious cycle.”

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