Music royalty group Hipgnosis Songs Fund Limited (LSE:SONG) has revealed it is facing legal proceedings over allegations of diverting business opportunities.
The litigation, initiated by Hipgnosis Music Limited, which is in liquidation, targets the company, its founder Merck Mercuriadis, and its investment adviser. The respondents denied the claims and said they would "vigorously defend" themselves.
The latest news adds another twist to an already complicated plot. Last month, more than 80% of Hipgnosis shareholders voted against extending the music royalties fund's mandate to run as an investment trust for another five years.
This decision challenges the future of the London-listed company, known for monetising royalties from artists including Mark Ronson and Shakira.
Hipgnosis must now restructure its board and present alternative strategies within six months or risk being dissolved.
Additionally, a planned US$440 million sale of music catalogues to a partnership involving its investment adviser and Blackstone funds was rejected by investors.
On Thursday, Hipgnosis said it plans to appoint independent advisers to conduct a thorough review of the company's assets.
"Completion of this due diligence will provide a strong knowledge base from which the board will commence a process of identifying and bringing forward alternative proposals for the future of the company," investors were told.
It was also revealed that Hipgnosis Song Management Limited, the company's investment adviser, has been asked to "propose alternative terms for their future investment advisory arrangements to the company".