The Aftershock: What’s next for Shock and Stomp

Published in The Music Network

 

The full extent of the financial mess surrounding Shock Entertainment and Stomp is only now coming into focus.

As both companies enter the next phase under new ownership, it appears a long line of artists, labels and small businesses will be left out of pocket. Shock and Stomp racked-up multi-million dollar debts, which weren’t picked up when their new owners swooped in.

According to Shock’s administration report, seen by TMN, the music company left a trail of creditors who were owed a total of about $4.2 million. Songwriters signed to Shock Music Publishing, which was placed into voluntary liquidation on June 7, are owed $1.5 million in royalties.

It’s a similar, yet considerably worse, tale of woe for Stomp, which went to the wall with $11 million owing. Like Shock, few creditors are likely to see much, if any, of a return.

When Regency bailed out Shock Entertainment, one of the keepsakes in the arrangement was the familiar and previously pristine Shock name. Hall Chadwick’s David Ross and Richard Albarran were appointed joint administrators on August 10, on which day the obligations and liabilities to creditors were frozen.

The creditors report is now with the administrators, and sources say it’s unlikely there’ll be anything in it after lenders National Australia Bank take their cut. The other secured creditor due $1mil is Mrs Maria Cristina Falvo.

On August 13, it emerged that the old Shock Entertainment company trading name had been changed at the time of sale to Dotvan Pty ltd. It’s under that trading name that Dotvan declared insolvency.

It looks a sneaky move. Former Shock Group chairman David Williams denies any unethical behaviour. But he accepts the blame for the turn of events.

“I acknowledge that the old company had some difficulties and there will be some pain to come out of that,” says Williams, who is retained by the new owners as CEO of Shock Entertainment. “Equally, I wouldn’t want to see the new chapter of the Shock business punished for what happened under my ownership, because the business can do a lot of good in the music industry. It’s certainly not the fault of Regency’s that people have lost money. It’s my fault and (co-founder Frank) Falvo’s fault.”

The reports make for sad reading. Many creditors owed are artists and indie labels. Various artists appeared on the Dotvan list, including Architecture in Helsinki, Little Red, The Hoodoo Gurus, and Painters & Dockers.

The biggest losers include local replicator Technicolour ($155,000), manufacturer CCS Media Packaging ($243,000), DVD label Aztec International Entertainment ($122,000) and the 40 staff at Shock’s Northcote warehouse, which is now superfluous to the needs of Regency, which already runs a warehouse out of Sydney. The warehouse staff, many of whom are musicians, will likely all be let go.

The Dotvan list also identified Regency as a major creditor with a whopping sum of more than $1.1 million outstanding. It’s a figure which raises huge question marks about the arrangement Shock and its new owner Regency came to.

The question was put to Williams on whether Regency forced the sale, or gained a distinct advantage over the other creditors. “No, that wasn’t the case. And effectively that money was lost as well, as they were a creditor of Shock.

From a Regency perspective, they lost that money. We had discussions with other companies as well. There was no offset or anything like that.”

Shock tried to stop the haemorrhaging in June when it shut-down three units including the poor-performing One Stop Entertainment division, which had saddled the company with debt. It bought little grace with its bank. With credit lines frozen, Shock sold its business around July 30, and ceased trading at that time.

TMN understands Regency was one of four companies that circled the assets of Shock, including a British firm.

The downfall of Shock and Stomp have similar origins. Both companies suffered from some poor decision-making in what is clearly a tough climate for selling CDs and DVDs. And neither company enjoyed much support from their banks. In the case of Shock, acquiring its One Stop Entertainment was the catalyst for its collapse. “If we’d never bought that company in the first place, we never would have had that debt,” notes Williams.

Drew Jorgansen, founder of Stomp in 1995, and his key executive colleague John Barry were unable to evolve Stomp to keep up with the upheaval going on within the industry, and the numbers caught up with them. Stomp’s lenders BankWest called in the debts.

“With the GFC tightening up, this has been a wakeup call,” says Paul Uniacke, who together his fellow Franchise Entertainment Group director Edward Nedelko picked up the assets of Stomp in early August. “These are small businesses, and the banks are being pricks to them at the moment. They’re not supportive of SMEs at the moment.”

Uniacke and Nedelko acquired Stomp through its shelf-company Surrealus, but the huge sums owed won’t be shelled out by Surrealus. Many of Stomp’s creditors are overseas labels, including Jonathan Poneman’s Sub Pop owed $219,000 and Tony Brummel’s Chicago-based Victory Records is owed $240,000. Neither exec wanted to comment on the situation. Other U.S. labels owed big sums include Tom Silverman’s NYC-based Tommy Boy Entertainment ($20,000-plus), and six-figure amounts to San Francisco’s Revolver and Californian labels Metal Blade and CMH Records. Closer to home, Stomp owes money to labels including all four majors music companies, and ironically, Shock.

Jorgansen and Barry are on “gardening leave,” and it’s unlikely they will play a role with the new company.

“We’ve got a fair bit of work to do mending bridges with suppliers,” says Paul Uniacke, “but it’s still a sound business.”

Shock and Stomp’s respective teams are currently engaged in the arduous task of trying to re-sign their content providers, and rebuild the music companies. When the dust settles, the name Stomp may be dumped. A handful of local and U.S. companies who spoke with TMN have re-signed. It’s business as usual, only with a string of angry creditors.

“You hope they haven’t left too many people in their wake, which would apply a negativity to the two brands,” notes Rubber Group of Companies MD David Vodicka. “There’s no doubt a degree of fallout. Shock had just a solid name, nationally and internationally. You may see that name diminish to some respect.”

 

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