A court-appointed receiver has walked away from the effort to restructure the troubled Premier Fitness health club chain.

At its most dire, the move would mean members see some or all of the chain’s 30 clubs, including six in Hamilton-Burlington, padlocked as early as Saturday morning.

The clubs are protected by court order until 11:59 p.m. Friday. After that, creditors could force a bankruptcy if frantic negotiations haven’t resulted in a restructuring or sale.

Premier was forced into receivership earlier this month after a major creditor demanded repayment of $38 million in defaulted loans.

Mark Chow of BDO Canada said his company walked away after Premier’s bank refused to give it access to bank accounts to continue operating the business.

“Our goal was to maintain the operation but that requires money and right about when we took over the decision was made that there would be no further money to operate the clubs through the receiver,” he said. “The only choices we could see were to shut it down or turn it back to the former owners and see if the guys could work out a deal.”

Court documents show Premier is in deep financial trouble. BDO’s cash flow projections predicted Premier needs about $890,000 more than it will bring in to meet its obligations. Debts include $47 million owed to equipment leasing companies — the bulk of that to Toronto-based DSM Leasing Ltd.; almost $6 million to the Canada Revenue Agency; $78,000 in unpaid hydro bills; more than $1 million in rent arrears and $1 million in unpaid wages for December and January. Insurance policies were also cancelled.

The receiver reported: “Fees being generated from club memberships are not sufficient to pay obligations as they become due.”

Some of those bills were paid during the two weeks BDO and Physiomed Inc. ran the business but the efforts were hobbled by Premier’s refusal to turn over full financial details of its operations.

In court documents DSM said it had not been paid since September 2011 and asked for a receiver because it had serious fears about the future of Premier.

As the situation worsened, DSM president David Young said in an affidavit, he had “frank discussions” with Premier founder John Cardillo about the need to restructure the business. Eventually a plan was conceived to sell the company to Physiomed founder Scott Wilson, a Toronto chiropractor who operates a chain of health clinics in many of the Premier clubs.

The sale of the clubs was announced to members late in December, but was never completed after Physiomed balked at paying more of Premier’s arrears until ownership of the assets was transferred.

Physiomed is said to still be interested in concluding the purchase of the chain and is actively involved in restructuring negotiations.

In a court filing, Cardillo opposed the appointment of a receiver because the publicity around such a move “would cause great damage to the business through the loss of membership and sales to members.

“There has always been a premium upon doing the proposed transaction quietly and away from adverse publicity. Much of the Premier Group’s financial difficulties arose as a result of adverse press and the game plan from the beginning of the discussions between DSM, Wilson and myself focused on how to have a smooth, seamless transaction,” he added.

(Premier’s business practices were the subject of a Hamilton Spectator investigative series in 2004.)

Cardillo also alleged the sale to Physiomed foundered because Wilson and Young were trying to get around clauses in the deal that preserved a portion of the company for Cardillo’s young children in exchange for Cardillo’s “guidance” of the new company.

“Wilson agreed that a company owned by my family would receive a significant percentage of the ownership” in Wilson’s companies, Cardillo said. “Wilson and I have had a falling out and I believe he no longer wishes that my family has these participation rights.”

Cardillo added he first decided to sell Premier after being diagnosed with a life-threatening cancer, a scare that “prevented me from devoting the time and effort to management of the companies that I had traditionally done with the result that the performance of the business lagged.”

sarnold@thespec.com

905-526-3496

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Clock ticking on troubled Premier Fitness health chain