Utopia Distribution Services Limited, the UK entity established by the ill-fated Swiss music company Utopia Music, filed papers with the High Court in London this afternoon appointing an administrator. UDS is a major player in the UK music industry's physical supply chain, with a significant percentage of physical music products in the UK going through its warehousing and logistics operation.
As we published this article, UDS landlord DP World confirmed to CMU that it was acquiring the assets of the company in what is believed to be a so-called 'pre-pack' administration deal.
The collapse of UDS follows close on the heels of the collapse of another Utopia-owned UK entity, Utopia Accelerate (UK) Limited, part of Utopia's royalty advancing business, which was put into administration on 26 Nov. Papers obtained by CMU show that Utopia Accelerate owed nearly £1 million to a number of creditors, including £240,000 to HMRC, and £509,600 to its Swiss parent company. Utopia Accelerate - in the best traditions of Utopia-owned companies - also massively screwed over its remaining employees, with nearly £170,000 owed to just three of the seven people apparently employed by the company at the time it folded.
Unlike Utopia Accelerate - which never really began operating - the collapse of UDS has far greater implications for the UK's music business, with the company handling a significant percentage of all physical music products sold in the UK, and in particular those from Universal Music and Sony Music.
It was these relationships with the major labels that apparently drove Utopia to acquire the business, on the basis that Utopia would be able to leverage existing relationships to sell its forever-vague 'tech' services offering to those labels.
Sources close to that deal have told CMU that there was a "delusion" within Utopia about this, and that the likelihood of the company being able to leverage those relationships in the way it anticipated was "yet another misfire" and showed an "unsophisticated understanding" of how the industry operated. However, Utopia went ahead with the deal anyway, which took place as part of a so-called 'pre-pack' administration from the former Cinram Novum, a company that had lurched from crisis to crisis over its history.
When that deal took place, 132 permanent employees and over 100 "temporary" Cinram Novum staff were transferred to UDS. Subsequently, a number of those staff were then employed by DP World - otherwise known as Dubai Ports - the global logistics business owned and operated by the state of Dubai, and its royal family, which owns the warehouse used by UDS.
Even after Utopia acquired UDS the company struggled to break even, relying on huge injections of cash month after month to pay staff and pay warehousing costs to "partner" DP World. With Utopia's Swiss entity having been forced into bankruptcy last month over an unpaid bill for just CHF 23000, any ongoing financial support for UDS from Switzerland has now stopped. CMU understands that at the point it went into administration, UDS owed what various sources have termed "enormous sums" to DP World.
In a conversation with Utopia Switzerland's defacto CEO John Mitchell, boss of Australian investment company Mitchell Asset Management, Mitchell told CMU that Utopia's Swiss company had been pumping enormous amounts of money into Utopia Distribution Services each month since it acquired the business.
Asked specifically about Utopia Distribution Services and whether it was "a great business" Mitchell was dismissive, saying "A great business to me is something that makes a profit.. UDS is a business that was purchased out of a pre-pack administration in September 2022... Our shareholders have underwritten or subsidised that physical distribution business to the tune of twenty million quid. That is cash our shareholders expected a return on. The business would haemorrhage money month every month. We weren't prepared to keep shelling out one and a half million pounds a month to subsidise the business”.
One of the biggest creditors, according to Mitchell, was UDS "landlord" DP World, which he said had been "forgiving" and was "allowing us to stretch our credit terms with them".
As a result of Utopia's bankruptcy in Switzerland, those cash injections to keep UDS afloat dried up, and with debts mounting it was only a matter of time before the business collapsed.
Indeed, several different sources over the last couple of weeks have told CMU that it was only a matter of time before UDS collapsed, unless a "white knight" came forward to rescue the business. Those sources have also indicated that, although attempts were made to market UDS as a going concern, there was initial interest that dropped away. One big hitter apparently reviewed information provided during that process and, in combination with their own research, said that UDS was a "disastrous" business that was old-fashioned, laden with debt and high costs, and that only "very stupid money" would do a deal to acquire UDS.
CMU understands that DP World may be owed as much as £3.5 million, making a sale as an ongoing concern problematic. One source told CMU "it's hard to imagine that someone would come along with an offer to buy UDS knowing that on top of any price to acquire the business they'd need to settle off the debts for the warehouse and would probably still be locked into the contract there", with the suggestion that the only possible outcome was that the business would collapse.
At the time Utopia took the former Cinram Novum business into UDS, two of the three major labels - Universal Music, and Sony Music - placed 'charges' on the assets of UDS. These charges were, CMU understands, to secure money within UDS which the two majors were not drawing out, allowing UDS 'breathing space' on money they were owed in order to give the company improved cashflow while it tried to pull itself towards profitability.
According to Utopia top banana John Mitchell, that never happened.
The only option, now confirmed to have taken place, was that UDS was rescued once more, this time by an existing stakeholder, in the shape of DP World.
A source within one of the major labels told CMU yesterday that the major had "no interest" in acquiring UDS, and agreed that, in fact, any such acquisition of a company with a significant share of the physical supply chain by a major label may not pass regulatory scrutiny.
The left only one possible option: that DP World itself would step in to rescue the business, with sources indicating to CMU earlier today that this was not only a likely outcome, but possibly a done deal, pending confirmation by the liquidators.
As we published this piece, DP World confirmed to CMU that this was the case.
Sources close to the deal have told CMU that a "major stakeholder" in UDS had "applied influence" in the time leading up to the company's insolvency, working with DP World to ensure that UDS ended up "with the best possible outcome".
That outcome appears to be that the ownerships of a major part of the UK music industry has been effectively offshored to a Dubai-controlled company for pennies in the pound.
That begs the question: why would one of the biggest logistics companies in the world, backed by the near-unlimited sovereign wealth of a petrostate, want a dysfunctional and broken business that couldn't turn a profit?
Does DP World also think that it can leverage a stranglehold on the UK music industry's physical supply chain into something more valuable with the major labels?
Only time will tell.
As we published this story, DP World provided a statement, saying:
We are pleased to confirm that we are taking on responsibility for full day-to-day operation of our state-of-the-art distribution centre at Bicester, following our recent purchase of the business and assets of Utopia Distribution Services out of administration. We look forward to working closely with our entertainment partners in this expanded role.
This facility has now been open for more than a year and is proving to be an outstanding success, supplying physical music and home entertainment to the growing UK market. Our reliable and competitive service, which includes state-of-the-art technology across the centre, enables our customers to distribute to the whole of the UK from a single site. DP World is committed to playing its part in ensuring the continued success and growth of the physical music and home entertainment sectors in the UK.
