Fish and Asparagus Ltd. (“FASL”) is a federally incorporated business that operates a restaurant in each of Ottawa, Toronto, and Kitchener, Ontario. It also sells frozen dinners to grocery chains across Canada. The frozen dinners are produced at its facility in Burlington Ontario.
The pandemic has been very difficult on the 3 restaurants in Ottawa, Toronto and Kitchener. But the frozen dinner business has picked up a lot during the pandemic.
It has been a tough year for the corporation on the whole. Aside from the pandemic, an employee who recently quit has stolen its secret recipe for its famous fish and asparagus meal and is refusing to return it unless he is paid $500,000. He says he will give it to a competitor unless he is paid.
Another frozen food manufacturer has started using a logo that looks very much like FASL’s except instead of a grey fish topped with asparagus, the competitor’s logo is a grey fish topped with green beans.
In addition, FASL’s CEO has just learned that a manager in its Toronto restaurant, Freddy Fowler, was asking job applicants about their religious beliefs during job interviews and refusing to hire some people based on those beliefs.
As if that were not enough, FASL had entered into an agreement of purchase and sale to sell a building it owned in Windsor Ontario, but the buyer refused to close the transaction. The buyer is very wealthy but simply decided not to close the real estate transaction. The sale price was $1.2 million, and FASL was counting on the sale proceeds to give it some cash flow and pay off its $800,000 mortgage on the property.
The restaurants have lost over $ 7 million since March 2020, but the frozen dinner line has generated a profit of $2.5 million. However, FASL owes $10 million to creditors and its only asset is the building in Windsor plus $200,000 in the bank. All its restaurants and its manufacturing facility are leased. The equipment in these restaurants in also leased from Super Duper Equipment Rentals. The production assembly equipment in Burlington is also leased from this company. FASL is up to date on all its lease payments, but cannot keep this up much longer since it only has $200,000 left.
The CEO and CFO think they can salvage the business if they close the restaurants, sell the Windsor building and focus on the frozen dinner business. The restaurants employ a total of 20 people. Management thinks 5 of those people have skills that could be transferred to the production plant in Burlington, but the rest will have to be let go. But they only have enough money to cover the negative cash flow for the next few months. There are 12 people employed in the Burlington production facility and the plan is to keep them working since the facility is profitable.
Question
PART A - IDENTIFICATION
First, identify all of the legal issues in this scenario. This can be done in bullet form. Correctly identifying all of the legal issues is worth 50% of the exam or 15% of your final grade. It should be about 1 page in length.
PART B- DISCUSSION
Next, discuss each legal issue in greater depth, and consider the possible implications for FASL as well as possible solutions. What legal tools are available to FASL to secure its objective of closing the restaurants and continuing to operate the frozen food business? This part is worth 50% od this examination, or 15% of your total grade.