How Wipro may have played a part in Vice's bankruptcy

Vice Media Group filed for Chapter 11 protection on May 15 in a New York bankruptcy court, with $834 million in debt and $350 million in assets.

Indian IT major Wipro may have been one of the factors that precipitated Vice Media voluntarily filing for bankruptcy, the latter's filings showed. The media group owes Wipro $9.9 million after the latter won an arbitration award. Wipro is Vice’s largest unsecured creditor.

Vice Media Group filed for Chapter 11 protection on May 15 in a New York bankruptcy court, with $834 million in debt and $350 million in assets.

In a court filing, Vice's Chief Restructuring Officer Frank Pometti said that while the company relied on external funding — both debt and equity — to fuel its growth and fund expenses, it also resulted in the company "being burdened by a highly leveraged and unusually complex capital structure."

However, while the company had been struggling and was facing a financial crunch, two factors made it inevitable that the company file bankruptcy — one of them was Wipro.

Pometti’s filings said that Wipro commenced arbitration proceedings against Vice Media in May 2020, which was related to the termination of an agreement. A Vice spokesperson had told Insider in February that the award “is the result of a failed outsourcing arrangement that VICE terminated some 3 years ago”.

The arbitrator ruled in favour of Wipro earlier in March, with the IT firm winning an award of $7.9 million plus interest at a rate of 9 percent, resulting in a total amount of nearly $9.9 million.

Wipro then approached the Supreme Court of the State of New York, and on May 4, got a judgment related to the arbitration award.

The very next day, it began the process of enforcing this judgement by serving a restraining notice on Vice. Because of the restraining notice, Vice was unable to access its cash or dispose of its assets.

According to Pometti, this led to additional defaults.

On May 10, Wipro approached Vice's primary bank, JPMorgan Chase (JPMC), with a restraining notice similar to the one the media company received just a few days prior, in order to freeze the account until the payments were made

This notice “sought to impose a stay on withdrawals from Vice Media’s accounts at JPMC”, the filing said. Pometti said that the account had funds in excess of what was required to satisfy the stay requirements of the restraining notice.

“It is my understanding that JPMC has frozen the VICE Media JPMC accounts pending an order from a court that clarifies the control of the funds in the VICE Media,” he said.

As per the filing, this freeze “essentially shut off much of the liquidity” of Vice.

“The lack of liquidity is a particular concern for the Debtors as they rely heavily on the services of freelancers and independent contractors. In addition, due to the international nature of the Company’s businesses (as described in greater detail below), they require liquidity to ensure that non-debtor foreign subsidiaries are able to operate in the ordinary course of business,” the filing added.

Now, Vice is asking to access the funds in this account.

This came at a time when Vice was already struggling and facing a financial crunch. Wipro was one of several companies that had approached the courts against Vice because the company owed millions to vendors.

While Wipro is Vice’s largest unsecured creditor, the media company also owes money to CNN Productions, Ernst & Young, HBO, Adobe Systems, and Amazon Web Services, among others.

Aside from Wipro, another recent event that hit Vice was its partnership with Antenna Group, which was a founding partner of Vice World News (VWN). As part of this partnership, Vice was to receive a quarterly payment of $34 million, but was instead informed that the partnership was being terminated.

“The impact of termination of the VWN relationship on the entirety of VICE’s businesses was substantial,” Pometti’s filing said. This termination, in turn, led Vice to ask for forbearance on its loans.

Wipro did not respond to queries from Moneycontrol at the time of publishing. The story will be updated if the company responds.

Vice on May 15 announced that it has agreed to an asset repurchase agreement with a consortium of lenders, marking the fall of a company that was once valued at $5.7 billion.

According to Vice, the consortium includes Fortress Investment Group, Soros Fund Management and Monroe Capital, which have agreed to make a $225 million credit bid “for substantially all of the company's assets, in addition to the assumption of significant liabilities upon closing.”