Chocolate City, a prominent Nigerian music company, is at risk of losing a significant portion of its equity – up to 60% – to its international partner, WEA International, a subsidiary of the New York-based Warner Music Group (WMG). This outcome stems from a judgement by the Commercial Division of a High Court in London, arising from a loan dispute between the two entities.
The court ruling prevents Chocolate City from prepaying a $1.7 million loan obtained from the American record label before its due date in 2024. Additionally, it upholds WEA/WMG’s right to opt for repayment in the form of 60% of Chocolate City’s shares. The judgement, delivered on November 16, marks the end of Chocolate City’s attempt to exit the loan obligations prematurely, thus preventing the lender from choosing the option of acquiring a substantial share of the company to offset the loan.
Founded in 2005 by Audu Maikori, Paul Okeugo, and Yahaya Maikori, Chocolate City acquired the loan from WEA under a contractual agreement in March 2019. The agreement, outlined in the court’s judgement, involved $1.8 million in “Convertible Term Loan Facilities.” On March 28, 2019, a day after the agreement was signed, WMG announced a partnership with Chocolate City, aiming to expand the reach of African artists globally and provide support through WMG’s distribution and artist services.
Despite Chocolate City’s desire to repay the loan in 2022, the court ruled that prepayment before the due date was not anticipated in the agreement. The judge, David Foxton, stated that there was no right to settle any negative balance before the maturity date or termination of the facility.
The dispute unfolded when Chocolate City, on September 8, 2022, served a prepayment notice to WEA, expressing its intention to repay the full loan amount by December 20, 2022. In response, WEA asserted that Chocolate City had no entitlement to prepay, leading to a legal battle.
The judge’s decision, affirming WEA/WMG’s interpretation of the agreement, grants the American conglomerate the discretion to accept either a cash payment or convert the loan into 60% of Chocolate City’s equity upon repayment. This judgement has significant implications for Chocolate City, potentially reshaping its ownership structure.
Chocolate City, known for being home to various recording artists, including M.I. Abaga, Ice Prince, and Victoria Kimani, must now navigate the challenges posed by this legal outcome.