PledgeMusic Moves Toward Liquidation: Here’s What Artists Who Are Owed Money Can Do

One of the more confusing aspects about the already confusing disintegration of PledgeMusic — the direct-to-fan marketplace that ceased operations earlier this year, leaving artists on the hook for a total sum estimated to be between $1 million and $3 million — is the terminology used in the proceedings: “administration” instead of “bankruptcy”; “winding up” instead of liquidation.

A “winding up” order was made against the company on July 31, with the trade organization UK Music calling on the government to take urgent action and investigate the company.

Variety reached out to music attorney Christian Castle to help explain the latest moves, which, in short, mean that the company has chosen liquidation rather than bankruptcy.

Can you explain in the simplest possible terms what has happened, now that an “Official Receiver” has been appointed for PledgeMusic in the U.K.?
Pledge had a choice between “administration,” which is somewhat like a reorganization where the company continues operating after renegotiating its debts and liabilities, and “wind up,” which is somewhat like a liquidation where the company shuts down and sells its assets to satisfy creditors.

After guiding fans, artists and vendors toward repaying within 90 days and then toward administration, which would mean the company could emerge and continue operating after paying off its debts and liabilities, Pledge instead chose winding up. If you look at the timeline, I think you will find that they were assuring administration was their course after they’d already filed for wind up.

I’m not a UK lawyer but as I understand it, winding up means Pledge shuts down and a government agent called the “Official Receiver” sells its assets to satisfy its creditors from the proceeds.  However, the Insolvency Service told me that the Official Receiver also has the discretion to investigate why the company is being wound up and if they find wrongdoing, the Official Receiver can refer the case to other agencies for further action either civil or criminal.  The Official Receiver has the power to seek to bar any of the Pledge board members from being a director in another company for up to 15 years. There are due-process rules to follow in all these situations.

Does this bring artists any closer to receiving the money they’re owed?
The Official Receiver is employed by the Insolvency Service in the UK.  Pledge has posted contact information for the Official Receiver on their website.  Strangely, Pledge does not say whether there is a deadline for contacting the Official Receiver, which I have to believe there almost surely is, and that Pledge knows this. There are likely a few secured creditors, who will be banks in most cases like this, and they will get a preference.  If there is any money left over, that sum will be paid to the unsecured creditors proportionately.  Fans, artists and vendors will likely be unsecured creditors.

While there are likely thousands of unsecured creditors, I would imagine that the only unsecured creditors who will be counted are the ones who contact the Official Receiver and file a form, but that should be confirmed with the Official Receiver.

What advice do you have for artists and fans who are owed money?
If I were a fan, artist or vendor who is unpaid due to Pledge’s default, I would immediately hire an insolvency lawyer in the UK to advise me.  If that’s not possible, I would send an email to the Official Receiver describing what happened, when it happened, your efforts at collection and how much you believe you are owed.  I would do that right away.  You have to start somewhere and now you have someone to deal with who is obligated to respond to you and not stonewall you.  You should also find out how to be notified of future actions in the case.

Even if you have little hope of getting paid anything, it is worth it to send that email so that the Official Receiver gets the full picture of the company’s behavior directly from those harmed.  A core fact that needs to be confirmed, hopefully by the government, is what happened to the fans’ money?  I have read reporting suggesting that Pledge may have co-mingled “pledges” with their operating accounts and used new contributions to pay old obligations.  If that’s proven true, then we are possibly in a whole different ball game.  The more information the Official Receiver has, the better job they will be able to do to bring justice to all concerned.

In addition, for American readers, I would also contact your state Attorney General’s consumer protection unit, especially for fans but also for artists and vendors.  The Federal Trade Commission is another potential option.  While Pledge may be winding up in the UK, there may still be jurisdiction over them in the US because they operated here and solicited money from fans here.  Conceivably, this could be a 51 jurisdiction issue for the US alone.  Fans may also wish to contact their credit card companies and contest the charge for their pledge.

To my knowledge, this is the first time a crowdfunding site has gone bankrupt.  Policy issues abound and need to be looked at both at the federal and state level in the US.  I understand that UK Music have already twice petitioned their government to conduct an investigation.

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