In his latest Coffee Break Briefing, Malcolm Niekirk looked at the sort of issues that an insolvency professional may have to deal with when advising a distressed music festival. He discusses the realisable assets that may be found in a music festival, the dependencies and the insolvency options.
This is the summary article from that briefing. If you want to you can view the slides from Malcolm’s latest briefing here, or watch the presentation below:
Quick Links
This article is long and comprehensive, so we've provided some quick links so that you can find what you want quickly:
- Music festivals as businesses
- What risks do festivals have as a business?
- What realisable assets do festivals have?
- What licensing does the festival have to comply with?
- How does the insolvency affect the licence?
- TUPE and GDPR considerations
- Music festivals: What are the insolvency options?
Music Festivals as businesses
Music festivals, for the most part, are single-event businesses; and there are generally three main roles for the key people involved in organising festivals.
- The curator - Sets the general atmosphere of the events, through their vision and contacts in the music business.
- The landowner - The site provider is likely to be critical.
- The project manager – Executes the curator’s vision by managing the project timetable and sourcing the key support services.
Insolvency professionals will need to establish which roles are undertaken by the festival owner and which are brought in externally.
What does a typical festival timeline look like?
An example of a simplified timeline might be:
- This summer’s festival takes place
- Site clearance
- Early-bird ticket sales
- Provisional bookings (this is likely to continue through the year)
- Ticket sales
- Contracting
- Site preparation
- Next summer’s festival
There are perhaps several trigger points at which the festival will have to commit to certain obligations, that will cost the festival money, regardless of whether it actually takes place. For example, at the contracting stage, the contractors may need a commitment from the festival by a certain date so that they can apply to the local authority in time for any notices required for traffic regulation orders (such as road closure).
When advising a festival, you will need to know what the trigger points are, how soon they are and whether any critical points have been missed; these factors will affect the options that you have.
Ticket sales
One potential issue that can arise with ticket sales is that, if the event does not go ahead the consumer will be entitled to a refund (due to their statutory protection).
This means that credit card companies and ticket agencies will want to protect themselves against the financial risk of cancellation. Many ticket agencies do this by holding the money from ticket sales in a trust account, and releasing it only after the festival has ended.
So, as an insolvency professional advising a distressed festival, you will need to find out what the arrangements are for the ticket sales that have already taken place, what they are for future ticket sales and what the risks are.
What risks do festivals have as a business?
- The weather – Hope and pray for sunny skies!
- Disorganisation – there’s a lot to go wrong, project managers need to be competent
- Compliance – complying with licensing conditions is a must to ensure festivals take place; and on top of that, festivals may have social distancing regulations to adhere to.
- Reliance of third parties – single-event festivals are heavily dependent upon outside contractors for the essential services
- Over-supplied market – There is a lot of competition, a festival may not be able to sell enough tickets to be viable
What realisable assets do festivals have?
Revenue may come from:
- Ticket sales
- Bars
- Concessions (food, other traders)
- Parking
- Merchandise
- Sponsorships
- Bands (smaller bands may pay for the opportunity to feature at large festivals)
- 'Glampers'
The buyer is likely to want:
- The licence (under the Licensing Act 2003)
- The curator’s contacts
- The project manager’s contacts, and planning records
- The landowner’s licence
- The festival’s name
- Cherry-picked contracts (e.g. with the ticket agency and other key suppliers)
- Any key people they may want to take on, either as employees or contractors
Licences
Legal issues affecting the licence in formal insolvencies are of wider relevance to other leisure businesses as well as festivals
A licence is required to:
- Play live music (amplified, or late at night)
- play recorded music
- sell alcohol
- sell hot food and drinks (late at night)
- show films
- put on plays late at night
- And more
So, the festival MUST be licenced to take place.
What types of licences are there?
There are two types of licence:
- A ‘temporary event notice; or
- A ‘premises licence’.
A temporary event notice is limited to:
- A maximum crowd of 500; and
- An event of up to 168 hours (seven days)
Most likely, the festival that you’re looking at will have a full premises licence.
A premises licence:
- Can be an indefinite licence
- Is transferable and will probably be included in a sale
What licensing does the festival have to comply with?
The licence will include a plan as well as an ‘operating schedule’. This gives a detailed description as to how a festival will be run.
An operating schedule will:
- Have a detailed plan of the festival site
- Set the dates and hours for it
- Say who is in charge
- Accept responsibility for:
- Preventing crime and disorder at the festival
- Safety of the public attending
- Preventing public nuisance
- Protecting children from harm
The licensing authority is likely to check compliance with the operating schedule on day one, before the festival is allowed to open.
Licensing – who is in charge?
The premises licence will have two names on it
Firstly - the name of the licence holder. They are carrying on the business from the premises. They don’t have to own the premises and can be a company.
As an insolvency professional, you need to check that the licence holder is that of the company that you’re dealing with; and that it is not itself something that has been sub-contracted to another company.
Secondly – the name of the premises supervisor. If a business is selling alcohol, this person must be qualified to hold a ‘personal licence’. Due to their importance, the premises supervisor is likely to be someone that the buyer is going to want to take on.
How does the insolvency affect the licence?
The formal insolvency itself automatically puts the licence at risk. The licence lapses as soon as you are appointed, as supervisor of voluntary arrangement or an administrator or a liquidator. So, if the company were to go into administration two days before the festival is due to start, they would have no licence.
You do need to act quickly, as you have 28 days (only) in which to revive the licence. There are two ways to do this, by:
- Lodging an interim authority notice, which immediately restores it for a period of 3 months
Or
- An immediate transfer. If done within 28 days, the person to whom it is transferred then has a valid licence and is able to use it (despite it having lapsed).
If neither is done, then the licence is permanently lost – and cannot be revived – after 28 days and whoever wants to run the festival in the future will have to apply for a new licence. This will be expensive and time consuming to get; and the licensing authority may take the opportunity to ask for new conditions within the licence.
The loss of licence will put the future of the festival at risk.
TUPE considerations
Many of the key people will be contractors or employed by contractors and therefore will not be transferred to the buyer under TUPE. Their contracts may contain clauses that make them terminate upon insolvency, so the buyer may have to re-negotiate terms with them.
Although key employees are likely to be transferred by TUPE, remember that they do have a right to opt out.
GDPR considerations
There will be personal data, yet it is unlikely to be in a special category. This means that it will not be treated as sensitive (in which case additional rules would apply to it). In brief, there are no great difficulties over transferring it; but the buyer does have to register with the Information Commissioners Office (ICO) and undertake that they will treat the data correctly.
The name
The name itself shouldn’t be too difficult to assign, but there may be trademarks in place to give it a degree of protection. You should also be aware that there may be third parties with legitimate claims to copyright over the design and logos; and they may claim rights over them or be looking for some sort of duress payment.
The location
Obstacles to changing the location of the festival:
- The licence – any change to the site requires a revised plan and the licence to be varied, perhaps with changed conditions (if decided by the licensing authority). A completely new location would need a new licence.
- Planning permission
- Generally, not needed, unless:
- There’s more than 28 days of events on that site
- Permanent structures need to be built
- The local authority has removed ‘permitted development rights’ from the area
- There is some other constraint, such as a site of special scientific interest (SSSI) at the premises
- Generally, not needed, unless:
- Un-enthusiastic neighbours!
- They might object to a festival starting near them, on the ground of ‘Nuisance’
- This may be a tort, at common law, to give them a legal right of objection.
- They may also lobby the local authority, for it to use its powers under the Environmental Protection Act 1990
- (It could, for example, use the ‘abatement notice’ procedure)
- They might object to a festival starting near them, on the ground of ‘Nuisance’
Cherry-picked contracts
As is so often the case, the buyer may want to divide contacts into mainly three, sometimes more, categories.
The buyer’s options for contracts:
- Take them over (by assignment or novation):
- Re-negotiate them (by novation, or a new contact);
- Have nothing to do with them (so do none of the above, and offer no indemnity).
Those contacts may include:
- Use of the site (the licence with the landowner).
- Support services:
- Ticketing
- Security
- Engineers
- Etc.
Music festivals: What are the insolvency options?
The factors include:
- The timing – how early you are brought in to assess and review, can affect your options
- The licence – the necessity to preserve the licence, to maintain the festival’s value
- Is there a buyer? – you may find certain parties are interested in taking it on, this will play a part in assessing the options available
- Reputational damage – will such an insolvency procedure damage reputation?
Consider:
- CVA?
- The R3 COVID-19 template may be suitable, if you’re involved quite early in the cycle
- Administration? The options here might include:
- Light touch administration
- Pre-pack administration – either back to the existing owners, or to a third-party. If it is a pre-pack to a connected party, be mindful of the new regulations.
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We hope you found the briefing useful. If you are an insolvency practitioner who would like to discuss the content of this article, please do not hesitate to get in touch.
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