Hipgnosis liable for the ‘misconduct’ of founder Mercuriadis during a legal claim

Hipgnosis Songs Fund could be liable for the alleged personal misconduct of founder Merck Mercuriadis, the controversial music rights organization warned on Monday.

HSF told investors it will continue with the Supreme Court claim against former CEO Mercuriadis after him refused to “release the company from liabilities that may arise from his alleged misconduct.”

In a statement, HSF said it ‘now intends to bring a Part 20 claim in the High Court against Mr Mercuriadis in which it will seek full damages’.

HSF sought damages earlier this month over a claim brought by a former Mercuriadis company against the fund, its investment adviser and the industry veteran, accusing the trio of stealing a “business opportunity”.

Hipgnosis Music Limited, established in 2015 and now dissolved, alleges that HSF “unlawfully assisted Mr Mercuriadis with, or received,” a “diversion from business opportunities.”

HSF has previously indicated that it is not insured against the costs of handling Hipgnosis Music Limited’s claim.

The announcement is the latest in a series of events that has strained HSF’s relationship with Mercuriadis and HSM.

In January, Hipgnosis stated that it would offer any potential buyer up to £20 million as ‘cost protection’ to acquire the entire catalogue. Investors will vote on the proposals on Wednesday.

This raises concerns that HSM’s ‘call option’, which gives the right to buy the fund’s music portfolio, would seriously reduce the value of the assets and cause investors to suffer large losses.

The company’s board is battling to secure the company’s long-term future and protect the value of its assets, amid an ongoing dispute with its investment adviser over an alleged conflict of interest.

The Canadian founded HSF in 2018 with Chic guitarist Nile Rodgers after a career managing artists such as Iron Maiden, Morrissey and Guns ‘N’ Roses.

HSF has racked up enormous debts by buying up the catalogs of dozens of musicians, including Blondie, Shakira, the Red Hot Chili Peppers and Fleetwood Mac’s Christine McVie and Lindsey Buckingham.

This led to its value plummeting as successive interest rate hikes by the Bank of England reduced the attractiveness of music rights compared to other asset classes such as bonds.

To try to reduce debt and finance a share buyback, Hipgnosis last year agreed to sell around a fifth of its music portfolio for £372 million to funds advised by Blackstone, the world’s largest asset manager.

But in late October, investors voted against both the deal and allowing the company to continue as an investment fund.

Hipgnosis Stocks fell 1.10 percent to 62.90p in early Monday afternoon trading