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Hipgnosis Songs Fund, the troubled music rights owner, is searching for a new auditor after PwC refused to reapply for the job.
The UK-listed investment trust said that the Big Four firm, which has audited the company since it was established in 2018, had “indicated they will not be participating” in a tender process. PwC had told the board it no longer wished to continue as Hipgnosis’ auditor, according to a person familiar with the situation.
The need for a new auditor is the latest blow to a company that already faces doubts over its future after shareholders voted down its attempt to secure a further five-year mandate last month.
Hipgnosis also said on Thursday that the company, its founder Merck Mercuriadis and its investment adviser had been served legal proceedings from a company formerly owned and run by Mercuriadis.
Acting on behalf of creditors, the liquidators of Hipgnosis Music Limited have filed a claim in the High Court alleging “a diversion of business opportunity” from HML — of which Mercuriadis was previously a director — to the Hipgnosis Songs Fund. They also allege that Hipgnosis Songs Fund “unlawfully assisted Mr Mercuriadis with, or received, this alleged diversion”.
All three parties deny the claims and “intend to vigorously defend them”. Hipgnosis Songs Fund warned that it was not insured for the costs of dealing with this claim, however.
PwC declined to comment.
Hipgnosis Songs Fund was founded by former band manager Mercuriadis in 2018 with ambitions of turning income from streaming, radio play and performances of music into a mainstream asset class. However the rise in interest rates have made its returns less attractive and has forced up the discount rate used to calculate asset values into the future. Hipgnosis also axed payment of its interim dividend after warning over debt covenants following a change in royalty payments to songwriters in the US.
Plans to sell a large portfolio of its music rights to a fund owned by private equity group Blackstone, which also controls its investment manager, were also blocked by investors last month despite concerns over high levels of debt and the large discount to its net asset value.
The company’s board, which has been forced to review options for its future as a result of the shareholder vote, said on Thursday that it would appoint independent advisers to conduct due diligence on the company’s assets ahead of any decision. Hipgnosis said that this will provide the information needed to start the process of identifying alternative proposals for the future of the company.
Additional reporting by Simon Foy
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