Local operators have taken over all of Hamilton’s former Premier Fitness clubs as the battered chain struggles through a financial crisis.

Following the collapse of an effort to sell the entire chain to a new owner, executives now hope to sell individual locations while continuing talks with frustrated creditors, including the federal tax department.

“No clubs in the Hamilton area will close. We have entered into arrangements with local operators to take over operations at many clubs, including all the clubs in the Hamilton area,” said Neil Proctor, Premier’s chief financial officer in an email exchange. “Prior to the Physiomed sale, we had been having discussions with long-term senior management employees to acquire certain locations as owner operators. We are now continuing those discussions along with stakeholders and other potential purchasers on the mechanism to deal with the balance of the clubs in order to keep them operational while being sold.”

One of the largest fitness chains in Ontario has been in crisis since early February when Toronto-based DSM Leasing successfully petitioned for a court-appointed receiver to take over the business. The company was owed $38 million for equipment leasing and financing and hadn’t been paid since September. After 10 days, the receiver recommended the court either shut the chain down or give it back to original managers.

Premier’s debts include $9 million to another leasing firm, more than $5 million to the Canada Revenue Agency and $1 million in unpaid wages to employees. Landlords and utilities were also unpaid.

One solution was a deal to sell the entire chain to Scott Wilson, a Toronto chiropractor who already operates a string of physiotherapy clinics in many Premier Clubs. Before the deal closed, Wilson started rebranding locations as Physiomed Fitness, but the plan collapsed when agreement couldn’t be reached on the true value of the business.

Proctor, however, alleged there are other reasons behind the failure, repeating allegations Premier founder John Cardillo made in court documents.

In a filing during the receivership, Cardillo alleged the sale to Physiomed foundered because DSM and Wilson 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.”

In an email Wilson rejected those claims.

“We strongly disagree with the description of events as characterized below. Pertinent details were omitted and/or ignored which have a significant bearing on the transaction,” he wrote. “The matter has been referred to our lawyers.”

Part of the Physiomed deal would have allowed Cardillo’s family trust to buy a portion of Physiomed, assuring his young children a piece of the business in the future. Cardillo decided to sell the business he started in a St. Catharines strip mall more than 30 years ago after being diagnosed with a life-threatening form of cancer.

Now, Proctor wrote, the goal is to keep the gyms operating until they can be sold and rebranded.

Premier operated seven clubs in Hamilton-Burlington: Upper Wentworth, Upper James, Centennial Parkway and York Boulevard in Hamilton and Fairview and Brant streets in Burlington. An eighth club, on Itabashi Way in Burlington, is jointly owned by a private investor and a company controlled by Cardillo’s wife Giselle. It operates separately from the Premier chain.

Selling at least three of those locations could be difficult. A report prepared by the receiver concluded the Fairview and York locations would lose more than $176,500 between them by April 12 while the Centennial Parkway location would eke out a thin profit of less than $7,300.

The value of the business has been further eroded by a steady loss of members worried the clubs will close suddenly, and employees and contractors such as aerobics instructors who haven’t been paid since December.

For one manager, it’s all like watching a loved one slowly die.

“I sit here writing because I know deep in my heart your latest article will seal the fate of Premier Fitness, its affiliates and anyone who is still being employed by them — myself included,” the veteran worker wrote. “I am part of a loving family in the facility I worked for.

“What I am thankful for is those who stood with us. The staff who … may never see a penny for their hard work over the past few months but they did what was true and right. They, as I, did it for those we work with and the members we care so dearly for. (T) his wasn’t just a story of business, it is more about the human condition. We are a family. We suffered together on a daily basis in the past few weeks. We gave, and the members gave.

“They kept us going when head office abandoned us.”