ASX-listed group takes control of Gloria Jeans

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Retail Food Group, the ASX-listed franchisor of food outlets including Donut King, Brumby's Bakery and Michel's Patisserie, says it has taken control of the New Zealand master franchise for the Gloria Jean's chain after the failure of the local company that owned the rights.

There are some 12 Gloria Jean's cafes in New Zealand, which had operated under the umbrella of Auckland-based Boost Group. In September, Boost was put into receivership by GJ New Zealand Holdings, which had provided vendor finance to Boost when it sold it the NZ master franchise. Boost was subsequently put into liquidation by shareholder Eric Chase, Companies Office records show.

Retail Food Group (RFG) "owns the global rights to Gloria Jean's so we still own and operate the brand even if Boost is in liquidation," a company spokeswoman said. "All our partnerships are working as usual" and RFG is currently seeking a new master franchise owner. The Gold Coast-based company has hired someone to run day-to-day operations in New Zealand, she said.

The first liquidators' report for Boost includes an explanation from Chase, who is also the company's director, for the failure. According to Chase, Boost purchased the NZ Master Franchise rights for $1.8 million "based on a leveraged buyout" with a loan from Bank of New Zealand and vendor financing from GJ New Zealand, a company ultimately owned by former ACT Party leader John Banks and Paul Ewing, an Australian who had been operating a franchise in Brisbane before establishing the New Zealand master franchise in 2003.

Chase says the annual net profit of the business "was purported to be approximately $1.8m". However, "from the date of settlement, the profitability of the system was significantly less than this and to stay afloat Boost Group had to be supported from funds input into the business by Eric Chase from other revenue sources," according to the liquidators' report from PKF Corporate Recovery & Insolvency.

Boost found "numerous discrepancies" in the way Jireh International, another Ewing company which had previously sold the master franchise to GJ New Zealand, had been trading and despite due diligence by BNZ and Boost, the "misrepresentation of the true position" wasn't discovered, Chase says, according to the liquidators' report. Boost "alleged that the true position was deliberately hidden by Paul Ewing," it said.

Unbeknownst to Boost, Jirah "had leased the equipment and fit outs of certain franchise stores in their name" meaning those stores were heavily encumbered. It turned out that some weren't part of the franchise system and others "were in the midst of legal disputes with Jirah/Paul Ewing", the report says. Some franchise stores weren't paying their full franchise fees.

"Boost would have never purchased the franchise system had it known about the misrepresentations which were made to us during the due diligence stage as clearly the value of the franchise system was nowhere near the $1.8m we paid for the system," it says.

Ewing put Boost into receivership when Boost refused to repay $660,000 of vendor financing that was secured by a general security agreement. Ewing couldn't be reached for comment, nor could Chase.

A New Zealand Herald article from June 2016, about the sale of John Bank's $5.25m penthouse in Auckland's Stamford Residences, quotes the former Cabinet minister as saying he had joined Ewing to launch a new chain of cafes.

"I've been working with Paul on opportunities for us in Great Britain, Australia and the United States and we're going to do our own brand," the newspaper quotes him as saying. "It will be coffee and food and that's where I started nearly 45 years ago, in Karangahape Rd at Becky Thatcher coffee kitchen."

Retail Food Group's shares last traded at A$4.49 (NZ$4.93) on the ASX and have declined 36 percent in the past 12 months. The company started in the 1980s and went public in 2006. It acquired Gloria Jean's Coffees in 2014, making it Australia's biggest coffee player, either in terms of franchise brands, store counts or market share, the Australian reported at the time.

The spokeswoman said its 12 brand systems now operate in 81 countries.