Chocolate City founders to lose 60% shares over loan dispute (Details)

Founders of Nigerian music company Chocolate City, Audu Maikori, his brother Yahaya and Paul Okeugo may lose 60 per cent of their company’s equity to American distribution company WEA International, a subsidiary of New York-based Warner Music Group (WMG).

This may happen due to a recent judgement of the Commercial Division of a High Court in London on a loan dispute between both parties.

The judgement prevents Chocolate City from prepaying a $1.7 million loan it took from the US record label ahead of the loan’s due date in 2024, while also affirming the lender’s right to choose to be paid back with 60 per cent of the borrower’s shares.

In the judgement delivered on November 16, it was stated that WEA/WMG has the right to either choose to accept the payment with full interest at the due date or convert the loan to 60 per cent of Chocolate City’s shares.

The High Court’s decision puts an end to the move by Chocolate City to walk out on the loan obligations early or take any action in order to prevent the lender from taking the option of demanding 60 per cent of its shares as a means of offsetting the loan.

Chocolate City had sought to prepay the loan in 2022, whereas the loan has a term of five years, from 2019 to 2024.

The Judge, David Foxton, ruled that prepayment of the facility before the due date was not envisaged under the agreement the parties signed.

“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.

Chocolate City, whose catalogue boasts of music veterans Femi Kuti and M.I. Abaga, was founded in 2005 by Audu Maikori, Paul Okeugo and Yahaya Maikori.

They obtained the loan in issue from WEA under a contractual agreement they entered into on March 27, 2019.

According to the court judgement, the agreement signed by the parties was for $1.8 million ($1,832,500) ‘Convertible Term Loan Facilities’.

The loan obtained from WMG was to be “payable in full or convertible into 60 per cent of the equity interests” of Chocolate City.