Chocolate City, one of Nigeria’s top music labels, may lose as much as 60% of its equity to an international partner, WEA International, following a recent ruling by a Commercial Division of a High Court in London.
The court ruled that WEA, which is a subsidiary of Warner Music Group (WMG), reserves the right to either choose to accept payment with full interest at the due date or convert an outstanding loan to 60% of Chocolate City’s shares.
The case was a loan dispute between the music labels. The Nigerian label obtained the loan in issue from the Americans under a contractual agreement they entered into in 2019 and attempted to clear the loan in 2022, whereas the loan had a term of five years, from 2019 to 2024.
The early repayment move would have prevented the lender, WEA/WMG from taking the option of demanding 60% of its shares as a means of offsetting the loan as enshrined in the terms of the deal.
The judge, David Foxton referenced some pre-contractual documents signed by the parties for a better understanding of the deal and said the pre-contractual documents were not legally binding but helped shed light on the unclear details of the contract itself.
He ruled that the prepayment of the facility before the due date was not envisaged under the agreement signed between the parties while affirming the lender’s right to choose to be paid back with 60% of the borrower’s shares.
According to him, “There is no right to pay off any negative balance under the ADA Distribution Agreement before the maturity date or termination of the facility (implicitly under clause 17.21),” the judge said.
The $1.8 million ($1,832,500) “Convertible Term Loan Facilities” was to be “payable in full or convertible into 60% of the equity interests” of Chocolate City.
In finance, a convertible loan or debt is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.
With this judgment, the American conglomerate is at liberty to accept payment in cash or convert the loan sum to 60% of Chocolate City’s equity when the facility is due for repayment.
As of the time of filing this report, African Folder had yet to get an official reaction from Chocolate City as their communication lines were unreachable. They, however, have the right to an appeal.
Chocolate City was founded in 2005 by Audu Maikori, Paul Okeugo, and Yahaya Maikori.