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#Written by David Tam, 1997. #
#davidkftam@netscape.net Copyright 1999#
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David Tam
Wednesday, February 12, 1997.
Business Press Review
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Henzel, John. "Scott's accused of playing shell game". The Globe and Mail.
Tuesday, February 11, 1997. ------------------
This article is about the legal battle between the franchisers and
franchisees of the well-known Kentucky Fried Chicken fast food outlets. The
franchiser, Kentucky Fried Chicken Canada (a division of Pepsi-Cola Canada
Ltd.), accused the franchisee, Scott's Hospitality Inc., of trying to break
franchise restrictions. By performing a series of transactions involving shell
companies, Scott's Hospitality attempted avoid the transfer of rights
restriction. Upgrade agreements were also avoided. As a consequence,
termination of the franchise agreement is being sought by the franchiser for
breach of contract. This means that about 400 KFC outlets across Canada will
be placed into the hands of the franchiser.
To analyze the transactions in more detail, Scott's Hospitality Inc. formed
Scott's Food Services to create a company that would become the new licensees
of the KFC license. However, in strictly legal terms, real control of the
company remained in the hands of Scott's Hospitality since no assets,
employees, or management responsibilities were transferred to the new company.
Scott's Hospitality then sold the share of Scott's Food Services to Scott's
Restaurants Inc., another newly created public company. Lawyers of the
franchisers argue these transaction breached the license agreements.
I my opinion, Scott's Hospitality knew exactly how to orchestrate the legal
procedures in order to match their intentions of avoiding franchise
restrictions. It is fascinating to realize how the legal system can be
exploited in such a way. The whole idea of incorporating a company and deeming
it as a separate entity from the owner/operator seems very artificial. This
legal, abstract creation allows for shell companies to be formed for various
reasons. In this particular article, shell companies were exploited to their
fullest degree.
(
geocities.com/siliconvalley/campus/9640/2ndYear) (
geocities.com/siliconvalley/campus/9640) (
geocities.com/siliconvalley/campus) (
geocities.com/siliconvalley)