Two weeks ago CMU broke the news that Proper Group AG - the company formerly known as Utopia Music - had been put into bankruptcy by the Swiss courts.
At the time Proper Group presented the bankruptcy proceedings as nothing more than a hiccup, a simple misunderstanding over a “minor debt” that had been settled as soon as it became aware of the problem. The company told CMU that it was “confident” that its appeal against the bankruptcy would be successful, putting it back on the straight and narrow.
As has so often been the case with Utopia/Proper Group, the reality is somewhat different. On a call today, John Mitchell, a key investor in the company and board chair - technically currently the former chair, pending the outcome of the company’s bankruptcy appeal proceedings - offered unprecedented detail on the current state of the company and told CMU “there’s nothing like truth to defeat the bullshit”.
Staff owed nearly €500k in unpaid salaries
However, it turns out that the “truth” includes the fact that the 25 staff employed by Proper Group’s Swiss entity didn’t receive their salaries in August or September, and the company now owes €474,090 in missed salary payments to staff - plus taxes, social security and pension commitments.
According to Mitchell, if the insolvency appeal is successful then “staff will receive their outstanding salaries inclusive of all AHV, ALV and pension”.
However, he added that, as of today, none of those employees have jobs “by definition and at law” and that it would be “up to the individuals in question and the company” as to whether they continued to work for Proper Group if the bankruptcy appeal is successful. He then noted that “in the case of rehire, the new contract would be a continuation contract, with all accrued rights included”, but that the company is “planning further redundancies as we enter the last quarter”.
Bankruptcy appeal success not cut and dried
Taking a notably different tone to the bombastic confidence of last week, Mitchell admitted in conversation that he is “not confident” that the bankruptcy appeal will succeed, saying “I’m as confident as I can be in a 200 page document that a small group of executives worked tirelessly on for ten days. I’m confident that, if I was looking at it in isolation, I’d lift it - because we have raised a significant amount of money on escrow for exactly this purpose”.
Should the company not be able to lift the insolvency proceedings, says Mitchell, then “there is a generous Swiss compensation scheme; this insolvency compensation covers open salary claims for an employment relationship for a maximum of four months at a rate of 100%, up to a maximum of CHF12,350 a month. And thirteenth month salaries or bonuses, vacation or public holiday compensation are considered on a pro rata basis”.
Bankruptcy provides "silver lining" to hardball creditors
In written responses to questions put to the company, Mitchell added that, in fact, there was a “silver lining” to the bankruptcy proceedings, in that the company has been able to play hardball with its creditors to “significantly reduce” the amount of debt it owes, adding that “creditors need to face the fact of the repercussions of a bankruptcy finding vs doing a deal based upon a successful appeal”.
At the end of September the company had €30 million in debts - though Proper Group is keen to point out that this includes “€18.29 million in conversions into equity that are not true liabilities”, adding that the debt has been reduced from “€56.275 million in August 2023”.
In his written answers, Mitchell further clarified that, with regards to the appeal, “nothing is clear with a court proceeding”, but that should the company be successful in appealing the bankruptcy order in Switzerland, the company would immediately “move to a debt moratorium/Chapter 11 proceeding to protect the company”.
Part of that, Mitchell says, would be that the company would “provide a composition dividend to clean out the balance sheet to zero”. Under the terms of a composition agreement, a company strikes deals with unsecured creditors to pay less than the amount it owes. Mitchell says, “to be clear, we expect to be able to move to a composition agreement with unsecured creditors that remain and deal with the balance sheet with absolute finality emerging next year with no outstanding debt and a cash flow positive business”.
Former owners of Lyric Financial may not get full amount owed
Those unsecured creditors, adds Mitchell, include the former owners of Lyric Financial who recently won a debt judgement in the New York courts against Proper Group AG for over $1.8 million relating to a final payment for the acquisition of the company which was not made.
Mitchell says that, after the court judgement, he “tried to negotiate through a transparent process a settlement that suited both sides”, but claims those conversations were halted after the sellers of Lyric filed further court action to enforce payment of the debt. As a result, says Mitchell, “this action has simply forced the position that we will deal with them in a composition agreement as unsecured creditors”.
Mitchell also revealed that the company has raised between €15 - 16 million in cash since December, with a further €6.64 million raised in escrow prior to the bankruptcy proceedings, against a target of €8 million. That means the investment is only able to be drawn down if and when the €8 million is reached.
“In a massive departure from our prior colleagues, the current executive team decided - and in a departure from the past - a minimum target required for release. In the past the company lived hand to mouth with the fund inflow from investors, which never allowed for anything to be dealt with decisively”, says Mitchell.
Sentric money still locked in escrow
However, one source of funds that Proper Group has still not been able to access is the remaining proceeds of its divestment of Sentric Music, which were locked in escrow “under the legally binding sale agreement”. Sources had previously told CMU that it was unlikely that Proper Group would ever be able to access those funds. Mitchell has now clarified that per the sale agreement the remaining money could be “released at the end of April 2025, April 2026 and April 2027 subject to performance criteria”.
One other interesting fact revealed by Mitchell is that a UK entity established in August 2022 during peak Utopia madness - Utopia Accelerate UK Limited - is “subject to liquidation”.
CMU had previously asked Proper Group AG to clarify why this entity had been left for months without any directors after the only director of the company - a former employee of Utopia - resigned his directorship after his employment by Utopia was terminated - and why the company had not filed its confirmation statement or accounts.
After a proposal to strike off the company was suspended in August, we put those questions to the company again, but did not receive answers.
Today, Mitchell clarified that the former director of Utopia Accelerate UK Limited, “an employee in one of the group companies” has now “come back on as a director with an assignment for the sole purpose to ensure the liquidation procedure for the entity in question could proceed with all haste”. As of today, the company has not declared insolvency, and no liquidation procedures are noted at Companies House, the UK’s company registry.
What's the future for Proper Group if it succeeds in appealing the bankruptcy?
Should Proper Group be able to appeal its bankruptcy in Switzerland and come through the other side, what is the future of the business? “The current team have operated vastly differently across all facets of the business in terms of transparency”, says Mitchell. “This has been a single trait under the leadership, cut the BS and follow on with facts. That’s our mantra”.
Find out more about Mitchell’s plans to “cut the BS” and the possible future for Proper Group AG tomorrow.