You financed the restaurant for a friend or relative, and now it’s run into financial difficulty. This could be due to a variety of reasons. Maybe the owner didn’t have enough experience, maybe it’s the wrong location, possibly the food isn’t that great, or maybe the prices are too high.
But, whatever the reason, there just aren’t enough customers right now to make it viable.
So, you have decided to take over. Your loan is in arrears and it’s really the only choice.
You have to make some quick decisions and follow an appropriate plan of action:
1) call the Landlord, make sure the rent is paid up to date,
2) call the utilities, hydro, water, gas, and make sure there are no arrears,
3) make sure you contact the municipality, not just for arrears of taxes, but for health inspections, and waste removal, otherwise the municipality could shut you down,
4) make sure the employees are paid up to date and will stay on to assist,
5) Contact the suppliers to ensure that meat, fruits and vegetables, general grocery items and other products will stay in supply on a timely basis.
Those were just the immediate steps. You have to place someone “in-charge” unless you can do this yourself. And, yes it is possible to appoint the owner. At least the owner will have a vested interest in the “work-out”.
You probably guessed right! Every payment to everyone was in arrears. So, you’ll have to bring everything current just to keep operating.
Do the math first! Don’t throw good money after bad. This may not be the best decision.
Remember, there were not enough customers, the food was not that good, there were not enough customers, there was no real support from staff, there were not enough customers, the menu needs revisions, there were not enough customers, the location doesn’t have enough parking, there were not enough customers, there are too many other similar restaurants, there were not enough customers, the theatres close too early etc. and there were not enough customers.
My basic point here is that something needs to be fixed. If you KNOW HOW to operate a restaurant, then possibly you can identify the problem and fix it. Otherwise, treat the restaurant as an emergency patient: STOP the bleeding first.
It is quite noble and quite nice to try to take over and operate the restaurant when your friend has failed, but now the issue is debt recovery, not what’s on the menu.
Let’s have another look at your security, and see what items here you may need should you decide to operate the restaurant as a going concern. The ones that you need for this purpose are noted in BOLD.
Here’s the security:
1) Chattel mortgage, upon specific chattels for major purchases, big ticket items, tools of the trade,
2) Assignment of Leases upon specific chattels for major purchases, big ticket items, tools of the trade,
3) accounts receivable,
4) assignment of book debts,
5) General Security Agreement,
6) Assignment of Leases upon business premises,
7) Assignment of Options to Lease upon business premises,
8) Assignment of Agreements to Purchase upon business premises,
9) Assignment of Options to Purchase upon business premises,
10) A pledge of the shares of the operating company,
11) A pledge of the shares of the holding company,
12) An assignment of the suppliers’ accounts,
13) A pledge of any intellectual property,
14) An agreement to be named as an additional insured on the insurance policy,
15) An agreement by the insurer to waive its rights of subrogation,
16) An agreement to the assignment of the telephone number,
17) An agreement to the assignment of the website,
18) An Authorization to examine the books,
19) An Authorization to examine the bank accounts,
20) An Authorization to examine the HST returns,
21) An Authorization to examine the Income Tax returns,
22) An Authorization to examine the Workplace Safety assessments and payments,
23) A personal guarantee of the owner, proprietor,
24) A personal guarantee of the spouse of the owner proprietor,
25) A copy of all suppliers’ contracts, including books of accounts, inventories and entitlements.
Many times, lenders will wonder: why do I need all that security? In this situation, numerous items were necessary just to operate the business, and we are, of course, assuming the owner-proprietor is co-operative. After all, he is still a friend.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com