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MIA challenges DV247 deal, calls for creditor unity

Ronnie Dungan
MIA challenges DV247 deal, calls for creditor unity

Trade body calls into question the legality of the DV247 arrangement and advises creditor unity to recoup debts.

The statement, prepared in cojunction with the MIA's legal team, said: "The MIA recently held a meeting of major creditors of White Rabbit Records Ltd (DV) where a number of issues were raised, as well as some important points of action that may be to the advantage for creditors to consider:

 1) The MIA feels that the only practical way to have a reasonable chance of creditors succeeding in recovering what is rightly due to them under their  'retention of title' (ROT) clauses is to join together as a single voice to put the case to the administrator or liquidator.  Recent experience with large retail insolvencies have shown that for creditors to maximise their recoveries in respect of ROT stock, it is essential that they join forces together, paying lawyers/accountants as necessary to achieve the required result.  Without this leverage and action taking place without delay, it is likely that creditors will not be as successful in recouping as much of their debt as they are entitled to.  This is because the new business continues to trade and is, in all likelihood, using creditors' stock to bolster their sales.

2) The industry is waiting for the SIP16 report from the administrator to confirm that the pre-pack arrangement was carried out on a valid basis allowing for the best return for creditors and the UK industry in general.  It has been reported that the DV web site had been managed by the purchaser prior to the company going out of business/ceasing to trade.  This would seem to be contrary to best practice and possibly illegal.
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3) There seems to be confusion regarding the marketing of the pre-pack, as no UK Company appears to have been advised of it.  It will be interesting to see the administrators' reasoning for this lack of marketing as it may be contrary to best practice and ultimately, if proved, there may be a potential to bring claims against various parties because of the concern that the sale may never have been marketed through the appropriate channels and therefore effected at an undervalue.

4) A critical element that can't be overstated is the fact that the facilitators for the liquidated company, iforce Group (distribution), are currently holding the bulk of the stock that will be subject to ROT and are themselves a major creditor.  As such, they are highly unlikely to allow any access to our industry stock until they have been paid all outstanding debts.  This is immaterial to any promises from the directors of the new or old company and/or the administrators. 

5) There remains much confusion and mixed messages amongst the UK's distributors about the structure, purpose and format of DV247 Ltd. Many companies are hesitant about signing any fresh distribution agreements until clarity is established.

6) It is advisable for MIA members to insist that a creditors committee be set up to consider and question the actions of the directors and possibly the administrators as without this there will be little leverage that can be applied to achieve a successful outcome for the UK MI industry.

7) Ultimately, MIA members may conclude that they are unhappy with the actions of the directors and/or the administrators in effecting the pre-pack sale of the business in the manner they have.  Accordingly, subject to the having the support of creditors, which is only really achievable if we stick together, it may be necessary to consider appointing other independent insolvency practitioners to look into the actions of the directors and the administrators so as to confirm that the sale has been at arm's length and carried out to an acceptable standard.

In conclusion, we believe it is essential to resolve the ROT position as soon as possible and creditors are urged to contact the MIA with a view to us co-ordinating matters.  We hope to write to you shortly after receipt of the SIP 16 report but, in the meantime, should you require any further information or explanations, please do not hesitate to contact us."

Tags: MIA , digital village , DV247

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