Rdio creditors seek examiner appointment or Chapter 11 case conversion

By Caroline Salls

Pittsburgh, May 6 – Rdio, Inc. creditors Sony Music Entertainment and Orchard Enterprises NY, Inc. asked the U.S. Bankruptcy Court for the Northern District of California to appoint an examiner for the company’s Chapter 11 case or convert the case to Chapter 7, according to a motion filed Friday.

Specifically, the creditors said an examiner should be appointed to investigate Rdio’s pre-bankruptcy and post-bankruptcy transactions with majority owner Pulser Media, Inc. and Pulser’s affiliates, including Iconical Investments II LP, and their respective officers and directors, “which at all relevant times have owned, controlled and dominated the debtor.”

Sony and Orchard said Rdio has been hopelessly insolvent since its inception, losing millions of dollars per month and amassing debt that far exceed its assets. The creditors said the company was undercapitalized and, but for periodic equity contributions from Pulser, which the creditors said were disguised as secured loans, Rdio could never have continued to operate.

According to the motion, Pulser’s and Iconical II’s claims should be recharacterized as equity or equitably subordinated. If the claims are recharacterized or subordinated, the creditors said there will be enough cash in Rdio’s estate to pay all unsecured creditors in full.

“However, if the debtor, Pulser, and Iconical II have their way, unsecured creditors will receive pennies on the dollar,” the motion said.

In addition, the creditors said the centerpiece of Rdio’s proposed Chapter 11 plan is a settlement negotiated by Pulser and Iconical II “that rewards Pulser and Iconical II with approximately $65 million in cash (approximately 90% of the estate’s assets) and broad releases and allows Pulser to retain its equity, while offering unsecured creditors pennies on the dollar.”

Sony and Orchard said the plan also provides Rdio’s chief executive officer and senior vice president of finance a combined $55,000 per month salary to continue to manage a company that ceased all operations in December. The creditors said these Rdio officers were, and may still be, Pulser directors.

“The debtor cannot be trusted to investigate or disclose potential claims against Pulser and Iconical II because the debtor’s officers and directors have personal ties to Pulser and Iconical II and a vested interest in making sure that Pulser and Iconical II receive as much as possible out of this bankruptcy,” the motion said.

Sony and Orchard said an examiner should be appointed to complete an investigation started by Rdio’s official committee of unsecured creditors “because it appears the committee has determined not to pursue its investigation.”

In addition to the appointment or conversion request, the creditors said any hearing to approve a disclosure statement should be adjourned until after the examiner files a report.

A hearing is scheduled for June 3.

Rdio is a San Francisco-based licensed music service. The company filed for bankruptcy on Nov. 16, 2015 under Chapter 11 case number 15-31430.

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