Oz banker writes off its own franchisees’ loans

An interesting development with the Bank of Queensland. I haven’t ever seen this type of franchisor debt cancellation before.

The Financial Standard of Australia reports today that BOQ writes off franchise loans.

Of 55 owner-managed branches in New South Wales for BOQ, most have been trading for only three years or less. More than three-quarters of the BOQ franchises set up in Sydney over the last three years are failing to meet business targets.

Normally the costs are very high when a franchised business fails: personal and corporate bankruptcy for the investor.

Owners of BOQ outlets in Sydney often walk away from their businesses. The owners of the Kellyville and Rhodes franchises are two to have done so in the last two weeks.

That is not happening here.

When an owner of a franchise opts to walk away from the business (and its continuing losses) BOQ invariably employs the staff directly in order to keep the branch open.

In a number of cases BOQ has also hired the former franchisee as branch manager, a situation that appears to include relief from at least some of their liabilities to the bank as part of a package deal.

I believe there are several solid reasons for this very unusual banker charity:

  • the business model clearly does not work, everywhere making it difficult to scapegoat any individuals,
  • the financing was almost 100% by the bank itself [a few conflicts of interest: duty as lender, duty as employer, self-regulated operator],
  • banks are extremely sensitive about charges of bullying or loan pushing and do not want to be dragged in as Exhibit A in the upcoming national government inquiry,
  • these former franchisees seem very savvy [national media, threats of collective legal action], and
  • maybe a few of these banker-now-franchisees-now-banker remember the intricate details of franchise financing [ie. they know where the BOQ buried their franchise dead].

As I always say, whenever you get a chance, complain to self-regulatory authorities and sue the professionals [lawyers, bankers, accountants, appraisers]. Double that sentiment when you can threaten to put dozens of pissed-off whistleblowing industry insiders on the stand within a massive a civil lawsuit.

  • I bet the newly re-employed bankers actually got a bump in pay and some much needed job security. Better security that the bozo BOQ execs who took the doofus idea of franchising branch services: hook, line and stupid sinker.

These are just like Canadian professionals.

Tell you what: I’ll let the kids carry on at university while T and I emigrate. Let me find out where the washrooms are [a little draw] and let me keep, say, 5% of all settlements. Heck, start passing the hat.

Les Stewart :: Ace Bounty Hunter

BTW: This article shows how much franchisor:franchisee relationships are very much like employer:employee relationships.

In fact, some franchise contracts have been seen to be so controlling of the franchisee’s business that the relationship was judged to fall within labour law. In other words, the franchise was seen for what it is: the veneer of an independent business with all relevant control given over to a dominant party.

  • The most recent situation was the Coverall system and the Supreme Court of Massachusetts, USA [see Michael Webster’s Are Franchisees really Employees? on Blue MauMau].
  • Webster has a particularly deep understanding of both franchise, business opportunity and labour law.

I think this is very fertile soil for getting money back. Complain to labour boards saying franchisors are just trying to evade duties as an employer. The janitorial cleaning segment is notorious for having microscopic control over their faux investors

I bet a clever banker could make the same argument because of the complexity, huge information investments needed and memberships in affinity programs such as Visa, MasterCard.

I wonder how much lending the Bank of Queensland does for other franchise systems and if this is what they really want to protect from scrutiny?

  • In 1998, I was told by the head of franchise banking for the Royal Bank of Canada that franchising is the most lucrative form of commercial lending there is. Period.

No question: guaranteed loans at prime +3% v. prime or less for mortgages.

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