Hipgnosis Music Limited takes SONG and Mercuriadis to High Court

Hipgnosis Music Limited, of which Mercuriadis was a director when it was ordered to shut down in 2018, has served all three parties with High Court proceedings, the trust revealed today.

The claimant alleged there was “a diversion of business opportunity from Hipgnosis Music Limited” to the company and the investment adviser – Hipgnosis Song Management Limited – and that the company “unlawfully assisted Mercuriadis with, or received, this alleged diversion”.

Failed continuation vote leaves Hipgnosis Songs manager in a ‘do or die’ position

The initial disclosure of the potential claim was added on page 100 of the latest annual report and the update today (23 November), confirmed that proceedings had now been taken to court.

The RNS notice also revealed that SONG is not insured as to the costs of dealing with this claim.

Mercuriadis, the investment adviser and the company have all denied the claims and, in the RNS notice, said they “intend to vigorously defend them”.

Both parties have been contacted for further comment.

Update on strategic review

This lawsuit comes amid a chaotic situation for SONG, after shareholders voted against the continuation of the trust, which forced the board to propose a reconstruction, reorganisation or wind-up of the trust within six months.

The failed vote also saw the collapse of its proposed $440m music catalogue sale to Blackstone.

Hipgnosis continuation votes don’t lie (feat. Wyclef Jean)

As a result of the failed continuation vote, the board is carrying out a strategic review of the trust and it said today it intends to appoint independent advisers to conduct due diligence on the trust’s assets.

The board explained the completion of this due diligence will provide “a strong knowledge base from which the board will commence a process of identifying and bringing forward alternative proposals for the future of the company”.

It added that, while this assessment is carried out, the board has requested that the investment adviser “proposes alternative terms for their future investment advisory arrangements to the company”.

New auditor

In addition to the strategic review, a full audit is being undertaken for next year, but SONG’s board has now said its previous auditor PwC “will not be participating”.

Hipgnosis Song Management Limited said it will “confirm the new auditor in due course”.

Markuz Jaffe, analyst at Peel Hunt, argued that the fact the initial disclosure of the potential suit was “buried” within the annual report “says a lot”.

“It is likely another unhelpful uncertainty hanging over a strategy under pressure,” he said.

Jaffe added that the overall RNS notice was a “double-edged announcement” as “on the one hand indicating positive steps made by the refreshed board in their strategic review process, offset by negativity from a potential claim”.

He said it would be “interesting” to see if any potential terms to the investment advisory agreement can be achieved by the board and if this will be influenced by any information discovered during the due diligence process the board are seeking to initiate.