Pemberton Barely Dodged 2016 Cancellation, Report Claims

The bankruptcy trustee for the now-defunct Pemberton Music Festival released a report this week that says the 2016 festival was in danger of not happening either, claiming that promoter HUKA Entertainment told investors the day prior to the event that it would be “canceled if an additional $3.6 million was not immediately paid to cover cost overruns.” HUKA has denied the legitimacy of the report.

The June 6 report from trustee Ernst & Young claims that approximately 20,000 campers were already on the festival grounds at Sunstone Ranch in Pemberton, British Columbia, on July 13, 2016, when HUKA supposedly informed the investors of the immediate need for more funds.

Pemberton Music Festival
Pemberton Music Festival

The Canadian investors reportedly agreed to loan the funds to H1 Events – a HUKA controlled U.S. corporation with other equity interests in Buku and Tortuga Festivals – based on an agreement that “each shareholder of H1 Events be liable for payment of their pro-rata share of the loans and the funds be exclusively for the 2016 PMF.” The promissory notes for the funding, which were obtained from each of the H1 Events shareholders, were never paid, according to Ernest & Young’s report.

HUKA released the following statement to Pollstar June 8 in response to Ernst & Young’s report: “This report is a one-sided, false narrative. There was constant communication between all the partners and third party accounting of all aspects of the festival. It was known well in advance an investment would be needed based on ticket sales. We are consulting with our legal team to actively correct these inaccuracies.”

A note on the first page of Ernst & Young’s report points out that background information was provided by management of the Canadian limited partners of the Pemberton Music Festival Limited Partnership and that the trustee has not verified the accuracy or completeness of the information.

The report was released a little less than three weeks after Pemberton Music Festival Limited Partnership and 1115666 B.C. LTD (collectively the “PMF”) announced it was filing for bankruptcy and the July 13-16, 2017 event was canceled. 

The 2017 festival would have marked the fifth edition of Pemberton Music Festival, after debuting in 2008 then returning under different ownership in 2014 with HUKA as the producer. The lineup was supposed to feature Chance The Rapper, Muse, A Tribe Called Quest, Major Lazer, Haim, and Run The Jewels.

The splash page on the event’s website was replaced May 18 with a notice saying Pemberton Music Festival would not be issuing automatic refunds for tickets “as PMF is now in bankruptcy, it has no ability to provide refunds.” The website notes that ticketholders can “file a proof of claim form as an unsecured creditor with EYI [bankruptcy trustee Ernst & Young Inc.] in accordance with the claims process.” Ticketholders are advised to contact their bank or credit card issuer to see if refunds are available from third parties for tickets purchased using a credit card.

Ticketfly, which handled ticket sales for the festival, has gotten flak for reportedly releasing funds from ticket sales to PMF ahead of the bankruptcy filing, rather than holding onto the funds to reimburse ticketholders.

The June 6 bankruptcy report confirms that funds from ticket sales were released, explaining, “Between April 19 and April 28, 2017, approximately $4.1M CAD of February 2017 ticket presales was released by TicketFly Inc. (“TicketFly”) to bank accounts controlled by HUKA to pay $3.2M for artist deposits, vendor deposits, producer fees and GST payable. The remaining balance of $900K was forwarded to the bank accounts of the PMFLP. The Canadian Investors did not receive any of these funds.” 

Last month, the bankruptcy trustee posted an online fact sheet about the festival, saying that the event had “incurred significant losses in each of the previous three years.” The June 6 report details the losses, reporting that Pemberton incurred losses of approximately $47.7 million CAD: $16.9 million in 2014, $16.8 million in 2015, and $14 million in 2016. Two months after the 2016 festival’s conclusion, HUKA reportedly informed the investors that an additional $2 million USD “was required to pay outstanding payables related to the 2016 PMF to permit PMF to permit HUKA time to source an investor.”

HUKA reportedly told investors that the 2016 festival would break even financially at minimum, after projecting losses of $4 million USD for 2015 and forecasting profits of approximately $2.4 million USD for 2014.

The report claims that HUKA received $3.45 million USD in producer fees for the 2014-2016 festivals and another $729,167 USD for the 2017 festival – including “approximately $350,000 CAD for recent producer fees paid to HUKA which HUKA may not have been entitled to.”

The bankruptcy is blamed on sluggish ticket sales for 2017, increased operating costs because of the weakening Canadian dollar relative to the U.S. dollar, the inability to secure additional funding, and increased difficulty in sourcing talent.

Pemberton Music Festival 2016
Pemberton Music Festival 2016

Vancouver Sun reported that 144 claims have been filed, as of a June 6 creditor meeting, including “109 ticket holders claiming $95,056 and 33 vendors claiming $10.6 million.” The Sun adds that Ticketfly has filed a claim for $7.9 million.

Last month the publication reported that secured creditors 1644609 Alberta Ltd. and Janspec Holdings Limited would reportedly be paid in full before unsecured creditors.

Both creditors have since withdrawn their claims, with the June 6 bankruptcy report noting that 1644609 Alberta Ltd. and Janspec Holdings Limited were prepared to forego any recovery of debts “for the benefit of the unsecured creditors.” Janspec is owed $2.07 million CAD and 1644609 Alberta Ltd. is owed approximately $1.5 million CAD.

Legal counsel for Ticketfly, Cassels Brock LLP, sent notice to the trustee May 25 that “estate funds held in trust accounts maintained by the trustee are subject to a quistclose trust and/or a constructive trust in favour of TicketFly.” If a court of competent jurisdiction makes this determination, the estate funds held by the trustee would be the property of TicketFly, rather than the property of the estate divisible amongst creditors. Distributing the funds to 2017 ticketholders “would remain subject to future clarification and legal determination.”

The trustee and other parties met with Ticketfly’s legal counsel June 5 and informed them that the secured creditors are no longer pursing their secured claims. The report adds, “Legal counsel to TicketFly has undertaken to determine if this circumstance alters the position of

TicketFly in respect of their assertive constructive trust claim.”

PMF’s assets include $3.3 million CAD in cash. 

Pollstar previously reported that WME Head of Music Marc Geiger has promised to help make a case against the festival’s owners, saying, “This is criminal what they did. … They stole people’s money … then hid in bankruptcy.” WME works with a number of artists that were supposed to play Pemberton 2017.

Geiger warns that the damage to consumer confidence from both Pemberton and Fyre Festival could have repercussions across the concert business, equating it to “the housing bubble.” He said that moving forward, WME and other agencies are most likely going to tighten up financial requirements and deposit requirements.

A source confirmed to Pollstar May 26 that Huka Entertainment has laid off some members of its staff following Pemberton’s cancellation.