PledgeMusic Disclosures Would Bring Sunlight to Fans and Artists and @InsolvencyGovUK

There appears to be some unusual statements regarding the unusual PledgeMusic liquidation bankruptcy currently underway in the UK involving at least one of the Pledge companies, Limited.

In a nutshell, Mr. Benji Rogers (who is very quick to haul out the implied, ostensible or actual invisibility cloak of working on a “voluntary basis”) has posted and also told Variety:

Note: PledgeMusic cofounder Benji Rogers, who left the company in 2016 but returned on a voluntary basis earlier this year, contested that claim in a blog post last week: “Pledge pursued a range of sale options with a basic hierarchy to try to achieve the best outcome for the creditors,” it reads in part. “In order for an administration to be successful any sale would have needed to generate a minimum price and although we were in contact with several interested parties, ultimately none offered that price and so we were unfortunately unable to appoint an administrator. The final and least desired option was to place the company into liquidation which was done on the 31st of July.”

He has also said something similar in the linked Medium post:

The problem for those in Mr. Rogers neighborhood is that the company never made a public statement disclosing that liquidation was at least a plan and that the liquidation filing had already occurred as of June 13.  Why is that important?

A number of reasons, but let’s start with the lack of candor toward those whom I would call the coerced investors in Pledge, being (1) the fans who gave them money to hold for the artists in good faith, and (2) the artists who relied in good faith on Pledge to pay them that money.  The artists who themselves undertook obligations to vendors recommended by Pledge in good faith and (3) the vendors who agreed in good faith to undertake reciprocal obligations to perform based on the expectation of future payment by Pledge.  There are probably other categories of coerced investors as well.

Here is the required bankruptcy notice from the London Gazette, which is a newspaper of record for legal notices in the UK.

Pledge Windup

Let’s unpack what was in that notice.  One purpose of the publication is to inform the public of an upcoming hearing on whether Pledge should be allowed to wind up.  Since it was the company itself that was filing the petition, it’s pretty safe to say that the only people who might oppose it might be creditors.  Those creditors might show up in court and make various arguments against the petition (subject always to proof), such as anyone running a ponzi scheme should not be allowed to seek the legal protection of the courts, misuse of funds generally, self enrichment, the whole range of comments that one can find about Pledge with a quick review of social media.  Or it could be as simple as why allow a company to wind up that hasn’t filed pubic financials since 2016:

Pledge Companies House

As indicated by the arrow, this petition was published on July 17, nearly a month after it was filed with the court.

Pledge Windup Publication Date

The petition was “presented on 13 June 2019″:

Pledge Windup File Date

It was filed “on behalf of the directors of Limited (the Petitioner)” presumably authorized by a board and shareholder vote at some time prior to June 13.

Pledge Windup Filed By

Often wind up petitions are filed by creditors, including relatively small creditors.–£750 or more.  When the debtor company itself elects to enter wind up, that may be at least an ostensibly legal tactic to get the benefit of any stays of litigation or other protections.

Mr. Rogers seems to be saying that the reason that Pledge filed for winding up is in case they could not find a buyer after months of looking, a buyer that would allow the company to enter administration (which is like a reorganization where the company comes out on the other side and continues to operate).  What he does not explain is why the company did not share this situation and strategy with the coerced investors, namely the fans, artists and vendors.

This is particularly odd because winding up a company is one of the biggest events in any company’s history.  No one person makes this decision in some kind of autocratic ruling in a company with as complex a corporate structure as Pledge, SPVs and all–it typically will require at least a board vote if not a shareholder vote as well.  This vote is based on a “resolution”.  When that resolution is put to a vote, it is usually accompanied by statements from at least the officers (and directors in the case of a shareholder vote), and a fairly detailed explanation of why ending the company’s life is the right course of action.   There is typically a set period of time that shareholders have to respond to the vote notice, further calling into question the sequence of events at Pledge.  It would not be unusual to see a somewhat detailed discussion of the company’s financial situation that gave rise to the wind up, WARN Act analysis if applicable, and other downside analysis, tax payments, potential claims, some or all of which the Official Receiver at the Insolvency Service may also review now that the petition order is granted.

If the company’s minute book and board records were shambolic up to that vote, there is usually a rush to clean up any missing minutes (which is where resolutions usually start before they are voted on by the board in a telephonic or in-person board meeting).  That final vote is usually carefully drafted because when the company submits to the jurisdiction of the courts and their agencies (the Insolvency Service and the Official Receiver in this case) it’s entirely possible that someone in the government is going to start with the basics–a close review of the corporate maintenance records.  Failing to keep proper books may be a sign of things to come, so that’s one reason they may start there.

What this should say to you is that there’s an easy way to clear this up–just publish the board resolution authorizing the wind up petition.  The filing was on behalf of the board of directors, after all so it’s not like they were responding to a creditor complaint.

And as Mr. Rogers said, this was all part of the plan, and the plan should be written down to one degree or another in board resolutions authorizing continued efforts to sell the company (even by a volunteer) or in the alternative wind it up if no sale can be had.

And here’s another reason that board resolution is important, both its existence and what it says.  When the notice was filed in the Gazette it would have been discovered in any due diligence review of the company by a potential buyer.  If I found it with a casual search, a buyer would have found it in a purposeful one.  So keeping it “secret” for strategic reasons with a potential buyer was just not going to fly, particularly because a buyer would also get the corporate records as part of their due diligence (as well as what appears to be the horror show financials).  And if it got to the asset purchase agreement stage, there’s any one of a number of customary representations that Pledge would have to make that would have triggered this issue.

So why didn’t Pledge publish the petition on their website as early as June 13 when it was filed?

Pledge Windup Objection Date

In order to be heard by the Court at the July 31 hearing, you would have to have given notice to the Court by 4pm GMT on July 30, i.e., close of business the day before.  But if you didn’t know that you had to give that notice, then no one would show up.  American creditors could have hired a lawyer to appear for them as a group, for example, sometimes called an unsecured creditors committee.  Or a pesky unsecured creditors committee that can get underfoot.  And a good way to be fairly certain no one was going to show up would be not to tell anyone through the Pledge website and instead only publish the notice in the London Gazette, a newspaper that artists, fans and vendors were very, very, very unlikely to read.

Pledge Windup Hearing Date

On the hearing date, the only people concerned with the interests of the artists caught up in this thing who were there was UK Music, the very effective trade group representing a wide variety of interest groups in the UK (which was organized by the artist Feargal Sharkey, OBE, lead singer of the Undertones and his extraordinarily able crew–take note US readers, we could use something like this).

UK Music

What did we hear from Pledge?  On or about July 25–six days before the hearing and six weeks or so after filing their petition, the site simply went dark with this message;

pledge statement

Digital Music News noted that an earlier version of the post had additional sentences in bold that was quickly deleted:

The company will go into administration at some point this week or early next which means that any funds received for the assets of Pledge will be distributed to all of the creditors involved.  This will include all of the artists who are owed money.”

Why was that deleted?  Someone knows.

Note as late as July 25 the company was guiding to administration–although that language was changed to the more cagey “work with outside counsel”  (therefor privileged communications if no crimes or fraud were involved).  The company also said it would take “the most appropriate next steps” which could literally mean anything but it seems to me in retrospect that in this case it pretty clearly referenced the wind up petition.  As Paul Resnikoff reported in DMN “Exactly how the board is planning to ‘update’ artists and fans on ‘appropriate next steps’ is unclear, though most likely, there isn’t another word from the company.”

This statement would have been the perfect time to call everyone’s attention to the filing deadline of July 30 for the July 31 hearing.

Mr. Rogers also tells us in a blog post:

This [liquidation] was not the route that I personally wanted for PledgeMusic and I wanted you to know that the last line of the many options that I had to get a sale of the company in administration, was cut on the evening of the 28th of July by text. This was the last viable option that I personally had after all previous attempts failed.

It was actually an option for the company.  So Mr. Rogers knew that the wind up liquidation was going forward on Sunday, July 28–two days before the deadline for notices in the wind up hearing on July 31.  I can’t find any place that he disclosed this impending deadline or its import.

It must be noted that Pledge’s insolvency likely meets two common insolvency tests: balance sheet insolvency and the failure to meet obligations when due.  There may be other liabilities that come to light in the course of the wind up proceeding, such as liabilities relating to taxes or the commingling of funds.

It seems to me that Pledge can make a few disclosures to begin to rehabilitate itself.  I mention these for the record and the list certainly is non-exhaustive.

–Publish the board resolution and voting records authorizing the winding up of the corporation, including all provisions made for paying debts or resolving liabilities, if any;

–Publish the July 25 text Mr. Rogers says he received (which he should have preserved);

–Publish any materials from the company’s accountants regarding their “going concern” warnings from the financials (which they should have preserved);

–Publish a bring down of the company’s financials that they are required to file with Companies House (not filed since 2016 per Companies House, see above);

–disclose which of the other Pledge companies are involved in the wind up;

Pledge Affiliatesand, of course, any US companies; and

–Publish any internal correspondence relating to the decisions to withhold from the creditors the fact that Pledge had filed for wind up on June 13 if such correspondence exists.

While there will be further disclosure to come, these documents would enlighten the public and the Official Receiver as to what are their appropriate next steps.

And here’s a tip:  In future be very skeptical of any company that has “.com” in its corporate name.