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The Midas Car Care Australia calamity reads as a classic in franchising disasters. There have been far too many complaints and reports published to cover all the plots and the sub-plots but it must have been one hell of an interesting ride for the very few franchisees that came through from beginning to end. 2008 saw the beginning of the what appeared to be the end however 2009 looks like being somewhat of another kick in the teeth for what is left of the Midas franchisee network. Here is a brief chronology leading to the Midas administration:
Franchisees reported that the new franchisor, Philip Bonney (July 1 2000 - December 24 2008), had reduced advertising to less than $500,000 per year from an average annual advertising fund of $3M per year. Complaints were repeated for more than 7 years while the fund was said to continually report a deficit.
Franchisees complained that they recognised that re-engineered rebates/mandatory purchases were attacking franchisee profitability while vocal franchisees were complaining of intimidation. They said their franchisee association had been disbanded after representatives were intimidated out of office or believed they were wasting their time and giving credibility to the alleged Midas scams.
Franchisees asserted that profitability had hit a low where the average shop operating costs had been estimated at 107%. Franchisee complaints had made it to the media. They alleged that Midas had negotiated ruthless franchisee rents to encourage franchisee turnover. Complaints to the Australian Competition and Consumer Commission [ACCC] and the Australian Securities and Investment Commission [ASIC] began and continued but have never produced any satisfaction for angry franchisees incurring substantial losses.
The media coverage of Midas troubles and profitability problems meant franchise sales were rare and about to end. It was estimated on one now defunct website that franchises were failing at an average of 1 per week during the worst period. These appeared to be given back to the franchisor or as was suggested by franchisees, snatched under confidentiality agreements and the warning of further financial loss and suffering if a franchisee exposed Midas practices. It appeared that franchisees had resigned themselves to an obviously disinterested ACCC.
Reports published suggest that almost 190 franchisees were turned over and mostly in an 84 month period. The industry had seemingly become aware that the franchisor was struggling with millions of dollars in payments to suppliers and landlords where late payments blew out beyond 90 and 120 and then 150 days.
Early in year the franchisor brought in investors John Fletcher (ex Coles/Myer) and Lazard Carnegie Wylie.
Long before the announcement of the December voluntary administration the investors had obviously realised they had bought into a turkey and it has now been suggested they had hatched a plan to remove the wilful franchisor and other unwanted liabilities, mostly leases and losing company shops.
It is said that financial projections forced the investors in the Midas franchise model to instigate a wink and nod relationship with the administrator. Lazard Carnegie Wylie (LCW) and the administrator, Ferrier Hodgson, have been accused of dealing behind closed doors on the basis of an alleged fictitious $12.5M debt to LCW and where an arrangement would see creditors get a trifling cents in the dollar take it or leave it deal. Obviously the administrative process was followed, however, it was reported that all offers for Midas were rejected on the basis of the greater LCW debt.
Ferrier Hodgson is now said to have become another victim to the Australian engineered Midas franchise catastrophe. The level of expenditure incurred while under administration was said to have blown out. It appears that this may have caused the administrator to make a poor decision to extend the first period of administration in what some describe as a forlorn hope to trade out and negotiate better terms. Midas advertising no sooner started in a rush and then turned into a dribble.
Difficult debt management, administration costs and fees have apparently now led to a souring of the relationship between the administrator and LCW. It is possible that the administrator needed to return more from the hand-back than anticipated by either party. All other "interested parties" and their offers had it seems been rejected.
The administrator has now extended again to June 2009 and will be attempting to revitalise previous other offers and possibly hope that LCW will increase their offer. Concerns from franchisees suggest that the biggest problem is that now everyone is well aware that any purchase of Midas will involve a small system of angry franchisees and where the Midas model will take many millions of dollars and years to rebuild.
Observers would have to suggest that liquidation of Midas is now a strong possibility and if common sense prevails that may be the outcome. From what has been reported it just seems silly to think Midas Australia can recover and produce a return for any short term investor or any investor with limited experience and funding. They suggest that to breathe life into this franchise model an investor will have to be prepared for a very long haul, major restructuring of the financial model and a decade of catch-up brand advertising.
That is where Midas Australia is today, 26 April 2009. Franchisees say the administrator has left them in the dark. Word that the franchisor was to be investigated over anomalies has seemingly been forgotten while the administrator needs to reduce costs.
Franchisees evidently want Ferrier Hodgson to fulfil its legal obligations to pursue any impropriety and for the real value of Midas to force it into liquidation. No matter what happens now creditors and landlords may believe they have been scammed. Perhaps time will tell but it is clear that the outcome for franchisees is not a consideration when the franchise is under administration.
There have been many more complaints made against Midas Australia and published in newspapers, magazines, across the internet and in submissions to government inquiries. There have been complaints about the administration. If only a portion is true perhaps the franchisees might have expected more from their government. The fate of those Midas franchisees that remain "left in the dark" is out of their control.
Will governments always uphold that franchisees within an administration have no rights and can be sold as contractual slaves to just anyone with enough bucks? They will of course since there is a contractual capacity to sell a franchise to an absolute lunatic at any time and governments and courts will uphold the contract and point to the signatures on it.
"…because a wink and a nod in the face of injustice have become a habit of mind for us.” — Alice McDermott