Sale of ailing fitness franchise falls apart

Premier on the market as rebranding unravels

A deal intended to rebrand beleaguered Premier Fitness Clubs has dissolved, leaving the potential buyer bitter and forcing debt-saddled Premier to sell its locations.

Premier chief financial officer Neil Proctor confirmed on Monday afternoon that the embattled fitness club franchise has been selling off its 30 franchises over the past two weeks. He says 18 spots have been sold so far, while the three or four least profitable gyms will probably be shut down for good.

Proctor expects to sell the remaining locations in a week. The proceeds will go to pay off a list of creditors that includes landlords, leasing companies and the Canada Revenue Agency. Whether those creditors will get all that they’re owed still isn’t clear.

“The original chain that existed last year doesn’t exist anymore,” Proctor said, adding that anyone who had prepaid for a membership will be reimbursed. “The locations are worth what they’re worth. If a potential purchaser isn’t around or an owner-operator isn’t around, unfortunately we’ll have to close it.”

In December, wellness firm Physiomed agreed to buy Premier’s assets. In January, it began rebranding gyms as Physiomed Fitness. The CEO of Physiomed hoped a renewed emphasis on customer service would win back customers turned off by Premier’s tarnished reputation.

In 2004, Hamilton Police investigated Premier following numerous allegations that the company had continued to deduct money from bank accounts of people who had cancelled their memberships.

Three years later, the federal Competition Bureau fined Premier $200,000 for a series of misleading advertisements.

But even as the rebranding moved forward, problems from Premier’s past kept popping up.

In January, Premier and Proctor pleaded guilty to violating the Employee Standards Act and were fined $130,000 by a judge in Brampton. The charges arose from complaints by 38 current and former Premier employees that the company failed to pay them wages totalling $76,000.

What happened next depends on who you ask.

Proctor says Physiomed backed out of the sale when revenue in early January — one of the most lucrative times of year for fitness clubs — didn’t reach expectations, and turned to BDO Canada Ltd. as a receiver.

But Physiomed CEO Scott Wilson says his company became alarmed when it realized the size of Premier’s debts and even more concerned that it owed back taxes. He says he decided that putting Premier into receivership was the best way to satisfy creditors while Physiomed worked to finalize the sale.

Either way BDO, which signed on as receiver on Feb. 10, backed out of the deal a week later, short-circuiting the Physiomed deal and throwing control of Premier’s assets back to Premier.

Now Wilson wonders if his company will ever get a return on the time and money invested in trying to take over Premier.

“We’re the biggest victims in this,” Wilson says. “We’ve spent millions of dollars trying to upgrade clubs and carry bridge costs with the anticipation that we were going to own this asset . . . The two months that we ran (Premier) basically becomes nothing.”