Mohamad Fakih, the founder and executive chair of Paramount Fine Foods, is locked in a legal battle with the restaurant chain’s biggest investors, who are seeking to remove him from the company and to restructure Paramount or wind up the business.
Mr. Fakih established a high profile over the years as he built Paramount into a chain of more than 30 Middle-Eastern fast-casual restaurants. Promoting what he calls a “kinder capitalism” model, he has encouraged entrepreneurs to take a more compassionate approach to running their businesses, which he says will help, not hurt, their bottom line.
Mr. Fakih was named 2021 CEO of the year by the Ontario Chamber of Commerce. He was also made a member of the Order of Canada in 2021.
But the investors say profits have been elusive. Documents in the case suggest Paramount has been losing money since at least 2015. Both sides accuse the other of wrongdoing and seek to wrest control of the business away from the other.
In court filings, Mr. Fakih acknowledges he has reached a “deadlock” with the investors, two businessmen based in Kuwait, who combined own a 75-per-cent equity stake in the Toronto-based private company, with the remainder owned by Mr. Fakih and his family trust. The voting rights are split 50/50 between Mr. Fakih and a company controlled by Ali Noureddine.
Mr. Fakih first filed a lawsuit against the investors in Ontario Superior Court in March of last year, accusing them of withholding required capital contributions to the business, and asking the court to order them to make up the shortfalls, or to divest the men of their stakes in the business in proportion to those gaps. Mr. Fakih claims that because of the shortfalls, he was forced to contribute millions personally to keep the business afloat. He has asked that one of the investors, Mr. Noureddine, be removed as a director of the company. Mr. Fakih is also suing for US$4-million that he says Mr. Noureddine owes that was laid out in a promissory note.
Mr. Noureddine and his business partner, Mirza Naeem Javed, filed a counterclaim saying Mr. Fakih encouraged them to invest in the business he founded in 2006, based on what they say were false claims that Paramount was profitable. Mr. Noureddine began investing in 2015 after contacts in the Lebanese community introduced him to Mr. Fakih. (Both are originally from Lebanon.) Mr. Javed began investing in 2018. Over time, the two investors increased their stake in the business: Together, the men say they contributed about $25-million to Paramount between 2015 and 2021, but were not given access to financial reports or updated corporate records. The claim says the US$4-million promissory note was obtained improperly by Mr. Fakih under false pretenses.
None of the allegations have been proven in court. A hearing on the matter is scheduled for early December.
The investors have asked the court to appoint a receiver to restructure Paramount’s operations or wind up the corporation, and to remove Mr. Fakih as officer and director. They have also requested an accounting for the funds they paid to Mr. Fakih and to Paramount, and a repayment of their loans and deposits, as well as damages against Mr. Fakih for misrepresentation and breach of trust and fiduciary duties.
In an interview on Monday, Mr. Fakih said he disputed the investors’ claims, calling their allegations “baseless.”
John Pirie, a partner at Baker McKenzie LLP and counsel for the majority shareholders, declined to comment on Monday because the matter is before the court.
“The company is a very good company and is still viable today,” Mr. Fakih said. “... Paramount is my baby. I built it.”
Paramount operates 35 restaurants, 30 of which are owned by franchisees, and two butcher shops.
Whether the company is indeed viable is a point of dispute. The investors engaged insolvency trustee firm A. Farber & Partners Inc. to assess Paramount’s financial position. The review found that the company recorded net losses since 2015 (the earliest year cited in the report). According to the financial information that Farber reviewed, in 2019 before the pandemic devastated the restaurant industry, Paramount had a net loss of $4.5-million on $22.9-million in revenue.
Farber’s assessment is that Paramount is currently burning through cash and is “insolvent.” Paramount likely will require restructuring “to stabilize and turn the businesses around,” the review stated. The review included a disclaimer saying that the information was preliminary and did not constitute an audit.
Mr. Fakih said in the interview that some of the information in the Farber report was inaccurate, and that he would file a reply in the coming weeks.
The investors also accuse Mr. Fakih of “paying improper personal expenses” for himself and his family through the business without approval. Those expenses include mortgage payments on a Mississauga home that Mr. Fakih owns, and payments on a Range Rover driven by his wife, among others.
Mr. Fakih said these expenses were agreed upon with the shareholders, and paid out by Paramount as a form of repayment on loans he personally made to the business.
“Those payments are allocated toward my contribution to the company,” he said, accusing the investors of attempting to harm his reputation to exert pressure on him in the case. “I built my reputation for years based on being a community-minded businessman and CEO. ... They have nothing to lose here. They live in Kuwait.”