The Swiss company formerly known as Utopia Music - rebranded Proper Group AG earlier this year - has had its bankruptcy appeal rejected by the Cantonal Court in Zug.
The news - which was published by the official gazette in Switzerland in the early hours of this morning, but effective 12 Nov - is the latest blow for the troubled company which, over the past couple of years, has sunk from a so-called ‘unicorn’ that trumpeted its $2.5 billion valuation, to a barely functioning circus and the laughing stock of the music industry.
Today, CMU has been told that some investors in the business may now be planning to take legal action against the founders of the company, while other shareholders are pointing the finger at the current management team, asking how on earth a company that claimed to be getting back on track could have “thrown itself down the toilet” due to an apparent administrative hiccup over an unpaid invoice.
That unpaid invoice for CHF 23000, owed to Swiss law firm MME Legal, precipitated the bankruptcy proceedings. Proper Group AG filed an appeal against the bankruptcy and were granted “suspensive effect”, meaning the bankruptcy action was put on pause pending the outcome of the appeal. Today’s gazette publication suggests that the Swiss courts were not convinced by that appeal. The company has now been placed back into bankruptcy with immediate effect.
With only one avenue left - an appeal to Switzerland’s supreme court - it looks increasingly unlikely that the company will be able to pull itself out of bankruptcy, leaving investors and creditors high and dry. CMU understands that those investors have pumped more than €200 million into the ill-fated venture, with recent desperate attempts to get investors to commit yet more money to the failing business.
Creditors of the company - at least some of those founders of businesses that were acquired by Utopia or where an acquisition was attempted but botched - are set to lose millions more, while huge amounts of money are owed in unpaid taxes and social security contributions across a string of shuttered subsidiaries around Europe.
The trail of destruction wrought by Utopia has seen hundreds of former employees left in the lurch by the company, with numerous horror stories of employees being fired when facing health challenges or personal difficulties, and other employees discovering that the premiums for private health insurance cover that they believed was in place as part of the employment contract had not been paid, leaving them unable to get private medical care when needed.
In an exclusive interview last month, Proper Group AG’s current head honcho John Mitchell told CMU that he had been “sideswiped” by the bankruptcy proceedings, instigated by that unpaid CHF 23000 invoice, which, he said, he “knew was on the agenda to be paid”, explaining that the company was “holding the board meeting on the twenty fifth [of September] to pay August salaries and this and the other invoice that we had to get paid, and we opened the mail and… totally fucked”.
That mail was the notification - issued by the court in Zug on 24 Sep - that the company had been placed into bankruptcy having apparently failed to contest the legal action. Mitchell’s implication was that it was a simple misunderstanding over dates that caused the mishap - a mishap that some investors regard as a disastrous failure on the part of the company’s current executive team.
At the time, CMU asked Mitchell how likely he thought it was that Proper Group AG would be able to successfully appeal the bankruptcy, given the poor track record of the company.
Mitchell - who, when not running Utopia, operates an Australian financial services business from an office above a nail salon in a Melbourne suburb - gave a fairly cavalier response, saying “nothing is clear with a court proceeding”, but quickly pivoted to talk up the difference of his management team versus earlier executives. “The current team have operated vastly differently across all facets of the business in terms of transparency”, said Mitchell. “This has been a single trait under the leadership: cut the bullshit and follow on with facts. That’s our mantra”.
The proof of the pudding is in the eating, and the Swiss courts have now taken a view on whether Proper Group AG’s appeal was based on facts, or bullshit. Vive la difference! One thing that is seemingly unchanged under the “vastly different” operational landscape of Mitchell’s new leadership team is the company’s repeated “errors” with employee paperwork.
As the story has unfolded over the past couple of weeks, numerous former employees of Utopia and its subsidiaries have talked to CMU, highlighting an internal culture that was chaotic from early on, with an apparent significant disconnect between a small cabal of senior executives, described by one former staffer as “secretive” and “self interested”, and the wider community of employees in Switzerland and across Europe.
A recurring theme of those conversations, and one thing that apparently did not change as the company slid further into chaos, was a policy of manipulating documents to mislead employees about the status of salary payments, taxes and social security contributions.
In July last year, Utopia suddenly closed down its UK subsidiary, Utopia UK (R&D) Limited. Just before that happened, a significant number of employees were issued with payslips that purported to show that their salaries had been paid. The money didn’t turn up, and staff were told that the company was being put into liquidation, and they should talk to the liquidators about unpaid salaries.
Former employees then discovered that the UK tax authorities had been told by Utopia that those salary payments had, in fact, been made - meaning that employees were unable to claim their unpaid salaries from the government backed National Insurance Fund that can step in to cover unpaid salaries when a company enters insolvency.
The payslips had been accidentally issued, said Utopia, and the notification to HMRC was an administrative error. It then transpired - as part of the liquidation proceedings - that PAYE taxes and national insurance contributions had not been paid by the company, with the liquidators revealing a £2.5 million debt to HMRC.
Additionally, payslips were issued showing pension contributions which must be made by employers had been deducted from employees - only for those employees to discover that Utopia had never paid those contributions into the relevant pension scheme.
As other subsidiaries were closed in Sweden and Finland similar stories emerged of employees being issued payslips that were not a truthful representation of statutory contributions that should have been made.
More recently, several former employees of insolvent Utopia subsidiaries in other countries have told CMU that they had been issued with - as one source described them - “obviously forged” payslips incorrectly showing that tax and social security contributions had been made to the relevant national authorities, with one source telling CMU that the only way those documents could have been issued was through deliberate “manipulation” of previously issued payslips using Photoshop or similar software. In several cases those documents were issued quite recently.
CMU now has accounts from multiple former employees across multiple countries independently telling us of similar events over a period spanning more than fifteen months, with the alleged wrongdoing stretching back at least as far as the insolvency of Utopia UK R&D Limited in July 2023. Many former Utopia employees who have spoken to CMU were unaware that similar things had happened in other subsidiaries, and are now asking who orchestrated the process, who was aware, and who signed off on fake payslips being issued.
There is no suggestion at all that Mitchell authorised - or was even aware - of the manipulated documents: the first occasion that CMU has been able to confirm this happened was the liquidation of the UK R&D subsidiary in July 2023, at which point the original Utopia management, including founder Mattias Hjelmstedt, were still in charge. However, these ‘paperwork errors’ continued to occur after Hjelmstedt and other executives were ousted from the company after the ‘Christmas coup’, and as the company has shrunk over the course of 2024, there are very few executives who were in place around July 2023 through to layoffs that happened more recently.
Mitchell - who has been tainted by wrongdoing in a business he controls before, when a director of his financial services firm Mitchell Asset Management was struck off by the Australian regulators for embezzlement - will doubtless be keen to clarify how incorrect employee paperwork has been issued on several occasions in different countries and subsidiaries.
Although there is no suggestion whatsoever that Mitchell was in any way complicit in that wrongdoing - and indeed it seems likely that it was he himself who tipped off the regulatory authorities - it is unfortunate for someone involved in the financial services industry to be dogged by repeated issues of this type.
CMU uncovered that particular unfortunate incident of embezzlement that took place at Mitchell’s own company, Mitchell Asset Management, shortly after revealing that a key executive at Utopia, lawyer Peter Löhr, had, prior to joining Utopia, been convicted of embezzlement in Sweden. This was apparently an “open secret” at Utopia, with Mitchell telling CMU that Löhr had previously disclosed his conviction to Mattias Hjelmstedt.
While it’s unclear what’s next for Proper Group AG in the immediate future, it looks increasingly likely that angry shareholders will be looking at where the blame lies for the tens of millions of euros squandered by the company. Some of those investors have indicated to CMU that they now regard legal action against executives of the company as the only viable option to recover funds.
One investor who contacted CMU earlier this week to ask whether we had any news on the decision of the Swiss court said that they hoped that “whatever happens, these people should never be allowed to run a business again”.