Illinois-based merch company SCP owes more than $4 million to over 300 clients including Mitski and Brent Faiyaz after abruptly shutting down operations last week, according to internal documents obtained by Billboard. And with plans to file for chapter 7 bankruptcy on Friday, it’s unlikely those clients will ever recover all the money they’re owed.
Some of SCP’s other clients included Father John Misty, Chappell Roan, T-Pain, Finneas, Brand New and Carly Rae Jepsen; record labels Loma Vista Recordings and Triple Crown Records; Pharrell Williams‘ Something in the Water music festival; and online content creators such as the Dungeons & Daddies podcast and YouTubers Team Edge.
On Dec. 17, SCP locked its roughly 150 staff members out of their emails before informing them in a mass email sent to their personal email addresses that they were all being laid off and the business was being permanently shut down the week before Christmas, according to the company’s former head of record label services Eric Weinberg.
Clients, meanwhile, largely learned of the closure by word of mouth until SCP leadership sent an official email on Dec. 19 informing them that the company would be shutting down. Clients who did not owe SCP money were told they would receive a secure folder containing their available e-commerce and customer data, as well as artwork files, and that they would be informed when their remaining merchandise in the warehouse was available for pickup — to be arranged at their own cost — in Batavia, Ill., where SCP was based, about 45 miles outside Chicago.
Any act that owed SCP money would be required to pay that back before collecting any of their remaining merchandise. The deadline to do so is end of day Thursday, but a member of SCP leadership says that if clients haven’t already been in contact with the company about payment, it’s now too late to get that process started. According to the internal documents obtained by Billboard, nearly 600 clients had outstanding balances with SCP for a total of $3.4 million owed.
Clients’ webstores run through SCP were also unexpectedly shut down, while they scrambled to figure out how to retrieve their merchandise from the company’s warehouse. Those clients who were owed money for sales handled during the year’s busiest shopping season were left wondering whether they would ever be paid. Clients including Mitski, Milky Chance, TV Girl, Polyphia and Something in the Water are all owed hundreds of thousands of dollars, according to the internal documents, while dozens of others, including Chappell Roan, Ninja Sex Party, Bruno Major, Mutemath, T-Pain, Lizzy McAlpine, Joywave and record label Tzadik, are owed in the tens of thousands. Their customers have been left in the lurch, too, with an unknown number waiting for merch that may never arrive. According to an email SCP sent to clients obtained by Billboard, none of those customers will receive refunds for unfulfilled orders.
In a Dec. 18 post on LinkedIn, SCP owner Stevie Hopkins said the company planned to file for chapter 7 bankruptcy. “I ask for everyone’s patience as time is of the essence for me and my team to organize and transition to an orderly winddown and put all available resources into fulfilling obligations to all constituencies,” he wrote at the time.
One music manager who represents three SCP artist clients says rumors that the company was in financial trouble began spreading a few weeks ago, but that he “didn’t really take it too seriously” because the business seemed to be “operating as normal.” He only became aware of the company’s dissolution on Dec. 18 after a colleague flagged a LinkedIn post by his point person at SCP indicating that she no longer worked there. He then texted the employee, who informed him that the company’s entire staff had been let go. After receiving the Dec. 19 SCP email to clients, the manager says he reached out to Hopkins regarding an invoice and was informed that the company was planning to file for bankruptcy.
“I just don’t know how something like this would happen,” says the manager, whose three artists are each owed “in the many tens” of thousands of dollars. “Everyone has been on tour the last two years. It’s been so busy, and I think they’ve been killing it.”
While SCP leadership would not comment on the circumstances that led to SCP’s closure, Hopkins addressed the issue briefly in the Dec. 18 LinkedIn post, saying the company had been struggling to stay afloat for nearly a year. According to Weinberg and a member of SCP leadership, the business made staffing cuts in February when dozens of employees were let go. Weinberg says there were additional smaller layoffs that followed over the course of the year, which the member of SCP leadership characterized as “additional terminations, operational changes or resignations,” adding that “a few departments” were “downsized” over the summer, “but very minimal.”
As news of the shutdown spread, SCP clients began posting about the issues on social media, with some claiming they hadn’t been paid for merch sales stretching as far back as April. One artist manager tells Billboard that their act hadn’t been paid for webstore income from October through December and that they’re currently owed $40,000, with $16,000 of that coming from unfulfilled pre-orders for special edition vinyl records that “were both expensive to us and the customer,” he says.
“Those are currently being manufactured still, so we have to fulfill when they’re done. So, we lose out on all the earnings, most of which would be covering the expensive cost to make it,” says the manager, who drove a cargo van from New Jersey to the SCP warehouse in Batavia this week to retrieve his artist’s merch.
Weinberg says that over the last several months, payment delays had become increasingly common, and he received “tons” of emails from concerned clients wondering why they hadn’t been paid yet. “So many people were experiencing that,” he says, noting that he and his colleagues were unaware of the company’s financial issues because account management and department heads did not have access “to anything regarding statements or overdue invoices or anything like that.”
SCP leadership declined to comment on the claim that SCP was months behind on payments to clients.
Several clients tell Billboard that they’ve set dates to pick up their merchandise from SCP’s warehouse this week, with some hiring companies like Merchtable, Overcast Merch, Downright Merch and Seen Merch to pick up and move the inventory. Only about seven to 15 employees as well as friends and family of Hopkins and SCP leadership have been on hand to prepare those orders. Staff from the other merch companies have also helped lighten the workload by packing orders in the warehouse and communicating with clients for orders they’ve been hired to pick up, according to the member of SCP leadership. A final deadline has been set for noon CST Friday to pick up merch. According to Weinberg, several employees were brought back following the layoffs to help clients retrieve their inventory after SCP got bank approval to temporarily extend its payroll, but most of them left the job shortly after reporting for work at the SCP warehouse on Dec. 18.
“The entire warehouse staff walked out on them Monday morning,” Weinberg says. “All the people that they asked to come in and help clean things up, came in, checked in, saw the mess and what they wanted them to do and just walked out on them…and made it even more difficult to get things in order for anyone who came by to pick up their stuff if they could.” The member of SCP leadership tells Billboard “there were some people who chose not to return” to work but would not comment on the number of those employees “as I do not know those details.”
In an updated LinkedIn post on Sunday, Hopkins claimed that “at least 50%” of inventory for clients with zero debt to SCP had been moved out of the warehouse up to that point.
Under federal bankruptcy law, in chapter 7 cases a trustee is appointed by the U.S. Trustee’s Office to oversee the debtor’s estate in a bankruptcy proceeding. Once a company files its chapter 7 petition, all its assets — including merchandise that remains in its warehouse — become property of the estate and the trustee appointed to the case assumes control of the company’s estate, including all of its assets. Once that happens, the trustee is responsible for the disposition of any inventory, which is then liquidated on the open market, likely for much lower prices than it would have fetched under normal circumstances. The revenue from those sales is then put into a pool of money to be spread among a company’s various creditors.
SCP creditors may not get more than “cents on the dollar” in terms of what they’re owed, says Brian Lohan, a partner at law firm Arnold & Porter who focuses on bankruptcy and restructuring. In typical chapter 7 cases, he says, “creditors often do not get full recovery. If the labels or artists are able to get their merchandise back prior to the filing, that will help them mitigate losses going forward. But if their merchandise has been sold by SCP prior to the filing and they are owed money on account of that inventory, or any inventory is still in possession of SCP at the time of its filing … they’re going to be standing in line as a general unsecured creditor just like everybody else that is owed money.”
According to the member of SCP leadership, based on what they’ve learned during this process, SCP’s bankruptcy case is more nuanced than most due to the fact that it involves licensed merchandise. Due to those licenses, they say, clients should still have the right to recover their merchandise from the warehouse even after the trustee takes over, provided they pay their outstanding balances. They add that they’ve also learned there’s a possibility the trustee will decide that the effort of dealing with the merchandise isn’t worth the potential money it would bring in, at which point they would abandon the merch back to SCP leadership to return it to the clients. “That is what we believe based on our understanding of what the process will be,” says the member of SCP leadership.
Following the liquidation, secured creditors — lenders who loaned money to SCP under agreements secured by a lien on the company’s assets — must be paid off with the value of their collateral. The bankruptcy trustee must also be paid, further diminishing the available pool of money for SCP’s various unsecured creditors, a category that includes artists and labels but also customers, vendors and laid-off employees.
For unsecured creditors, priority is given to certain claims by employees for unpaid wages, as well as creditors who sold goods to SCP “in the ordinary course of business,” Lohan says — most likely vendors. Those creditors are “entitled to receive a priority unsecured claim for the value of its goods received by the debtor within 20 days of the bankruptcy filing,” he adds.
Chapter 7 bankruptcy cases “can take anywhere from months to years” to resolve, Lohan notes. “However, even on the short end, distributions to creditors on account of their claims will take several months,” he adds, noting that the process includes resolving “potential litigation against various parties” involved.
While artists and their teams face the slog of retrieving remaining merchandise and — hopefully — some of their sales money owed, they also must figure out what happens to their merch moving forward. That means new opportunities for SCP’s competitors.
“There’s already like five merch companies that have emailed me being like, ‘Do you need new merch solutions?’” says one manager. “Word is out.”
This story originally appeared on Billboard
