State Orders Pioneer Chicken to Stop Selling New Franchises

Pioneer Take Out, a franchiser of 275 fried-chicken outlets in California, was ordered Friday by state regulators to stop selling additional franchises until it can prove it is solvent.

In announcing the order, California Corporations Commissioner Christine W. Bender said Pioneer, among other things, failed to disclose its “liquidity problems” to prospective franchisees. She said the 22-year-old Los Angeles company also failed to show that it currently has the required minimum of $5 million in net worth to be legally exempt from registering its franchise offering with the state Department of Corporations.

Pioneer conceded that it failed to keep the department “as fully informed as we should have,” but insisted that the company’s net worth exceeds $5 million. Bart Jolin, executive vice president of the privately held company, said Pioneer will seek a hearing with the department next week and predicted that the order will be reversed “very soon.” The order has no effect on the existing franchises.

Exceeds the Minimum

“It is no secret that Pioneer has been having cash-flow problems,” Jolin said, “but the company continues to have a very substantial net worth, well in excess of the $5-million net worth required by statute.”

He said the company’s cash problems partly stem from unpaid royalty fees and other money due from some franchise holders who have taken legal action against Pioneer, he said.

Timothy H. Fine, a San Francisco lawyer representing more than 50 Pioneer franchise holders who filed a complaint leading to Friday’s order, called the action “the best news I’ve heard.”

The group filed a $25-million class-action suit against Pioneer in December in Los Angeles Superior Court, claiming that the company failed to provide required advertising support, did not pay suppliers and, in some cases, failed to pay rent for franchisees.