THE RESCUE deal for the troubled O’Brien’s Sandwich Bars chain will not go ahead unless the company and its franchisees can resolve a number of legal issues relating to the leases on its restaurants.
The Graeme Beere and Denis Desmond-backed AIL Ltd has agreed to take over the chain’s business in the Republic, which was placed in examinership last July with debts of €4 million. The period of High Court protection from its creditors has a further five weeks to run.
O’Brien’s has written to its 80-plus fanchisees in the Republic stating that examiner, Paul McCann of Grant Thornton, does not believe the company has a viable future as long as it retains its liabilities as a tenant under the leases on its outlets. It adds that “the offer from AIL is conditional on steps being taken to assign, surrender or repudiate these leases”.
The Brody Sweeney-controlled O’Brien’s Irish Sandwich Bars leases the outlets that house its restaurants and takeaways, and sublets them to the franchisees, who own the individual businesses. This means the company pays the rents on the premises to the landlords, and in turn charges the franchisees rent.
As part of its re-organisation, it wants to transfer the head leases to the franchisees, which means they would pay rent directly to the landlords. The company has also been seeking to get rents reduced for its franchisees.
However, it has told franchisees that the transfer of the leases, or the related paper work, must be completed on September 15th.
The company intends going to the High Court two days later, on September 17th, seeking an order to “repudiate” those leases which have not been transferred to the franchisees. In a circular to franchisees, O’Brien’s explains repudiation as “the company is seeking a court order to terminate the head leases” – that is the lease agreements between the company and the landlords.
If the company fails to have the leases repudiated, it warns franchisees that AIL will not go ahead with its investment and it is likely the group will be placed in liquidation. In that situation, it says the franchisees will become direct tenants of the landlords, but would not necessarily get any reductions negotiated by the company. The franchise agreement would also be fully enforceable.
If the leases are repudiated, the company will no longer be involved in them. The franchisees will also become direct tenants of the landlords in that situation, but possibly without the benefit of any reductions in rent agreed by the firm, it says.
