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OnLive closes, re-opens to avoid debts

OnLive closes, re-opens to avoid debts

OnLive is dead, long live OnLive: the cloud gaming company has sacked its staff and closed its doors, only to reopen again under the same name with new investors.

Troubled times are brewing at cloud gaming pioneer OnLive, which has been going through some interesting legal wrangling in order to stay afloat - even, at one point, laying off its entire staff.

OnLive's staff were reportedly given the boot last week, while the company continued to release statements to press denying any problems and declaring things to be absolutely A-OK. These statements have since been revealed as ever-so-slightly misleading, but the company has declared that things are business as usual for its customers.

To avoid bankruptcy, OnLive has decided to create a new company - a manoeuvre known as a Phoenix company after the mythical bird which is re-born in fire - in a restructuring which sees the original OnLive closed and its debts unpaid. The new company, which is also called OnLive, will pick up the pieces and continue as normal without the burden of debt the original OnLive enjoyed. For clarity, we'll refer to the original and now closed company as OnLive-1 and the new, business-as-usual company as OnLive-2 throughout.

Speaking for both OnLive-1 and OnLive-2, the company's board has issued a statement explaining that OnLive-1's assets were transferred to a third-party who then sold them on to OnLive-2 - neatly bypassing rules on simply changing the name of your company to continue operations while avoiding debt repayment.

The stockholders, meanwhile, get bupkis: only assets were transferred to OnLive-2, meaning that investors in OnLive-1 have just seen their money disappear and their shares rendered worthless. Shares in OnLive-1 will not, in other words, be exchanged for shares in OnLive-2.

But what about the company's employees? 'Almost half of OnLive's staff were offered employment at their current salaries in the new company immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company,' OnLive-2's statement to press explains. 'Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.'

The offer of options - a promise to be able to buy stock in a company at a certain price at a future date, and the means by which many early tech start-up employees become stinking rich - will likely come as little comfort to the employees not being re-hired by OnLive-2: after all, the board has already shown that it has no problem rendering stock worthless by closing down OnLive-1.

For customers, OnLive-2 claims everything is going to be just fine. 'Users should see no change in the OnLive Game or Desktop Services.' the company explains in its statement. 'All of their purchases remain intact and available.

'The asset acquisition, although a heartbreaking transition for everyone involved with OnLive, allows the company's core innovation and ongoing offerings–the product of over a decade of hard work transforming the OnLive vision into reality–to survive-and continue to evolve.'

40 Comments

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steveo_mcg 20th August 2012, 12:16 Quote
That is really dodgy, If I were stupid enough to have bought into On-Live I would be spitting. I wonder if the founders of the company have lost much money in this venture...
Gareth Halfacree 20th August 2012, 12:21 Quote
Quote:
Originally Posted by steveo_mcg
That is really dodgy, If I were stupid enough to have bought into On-Live I would be spitting. I wonder if the founders of the company have lost much money in this venture...
According to OnLive-2's official press release: "Like all shareholders, neither Steve [Perlman, OnLive's founder] nor any of his companies received any stock in the new company or compensation in this transaction at all. Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget."
ev1lm1nd666 20th August 2012, 12:31 Quote
Is it just me or does that sound a lot like legalised theft?
faugusztin 20th August 2012, 12:33 Quote
Yes it is exactly that, but i am not sure it is entirely legal. Phoenix company part of it is fine, but the rest of it - not so sure.

But this kind of behavior is exactly something they can't afford - no one will deal with them seriously now.
azrael- 20th August 2012, 12:40 Quote
OnLive just needs to die. Quicky and without any chance of being "reborn". I've never been fond of OnLive or the concept that makes it tick, but this is really low.
steveo_mcg 20th August 2012, 12:41 Quote
Quote:
Originally Posted by Gareth Halfacree
According to OnLive-2's official press release: "Like all shareholders, neither Steve [Perlman, OnLive's founder] nor any of his companies received any stock in the new company or compensation in this transaction at all. Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget."

Not quite so bad, although I'd wager all my OnLive1 shares that Steve Pearlman didn't pay out a shiny penny for any of his company shares.

Still as faugusztin points out they're as good as dead now any way, who would seriously invest money in the new-co. I'd be disinclined to even work for them unless I was paid upfront.
wuyanxu 20th August 2012, 12:48 Quote
reopen a company to avoid paying debt?

no wonder the economy is in such a state!
Phil Rhodes 20th August 2012, 12:50 Quote
Am I the only person who suspects that "reduced compensation" means a slightly less generous spec of company Jag will be seen in the car park?

This is incredibly common in the film and TV industry, as well as things like live events and music concerts. I'm self-employed and I've both lost money personally, and had clients of mine literally bankrupted by this sort of behaviour.

Don't believe for a second that the only people who lost out were a few share-holding pension schemes. It would be reasonable to suspect they screwed individuals just like me - and I suspect like some of the people who write for this site, who also seem to be freelancers - out of thousands.

The only people who win in these situations are the jaguar-driving *******s in the pink shirts and the nice offices who run the company. It's despicable. I'm astonished there isn't some sort of legislation preventing it from happening, but as it's a manoeuvre typically used by rich people to stuff less rich people, I can't see a Tory government giving a damn.
greypilgers 20th August 2012, 13:12 Quote
Wouldn't it be nice if I were able to, on the unfortunate happenstance of simply running out of money and not being able to pay my promised debts, transfer my assets to someone else who could sell them back to me under a different name for pennies, and so avoid all my debt?

If companies and ideas have to Phoenix, then fine, but the a$$holes that steered the company to bankruptcy in the first place should be prevented from having anything to do with it.
SighMoan 20th August 2012, 13:14 Quote
What a scam. I hope they have all the money they will ever need as i can see getting investors in future to be a somewhat difficult proposition.
proxess 20th August 2012, 13:22 Quote
They're driving Jags cause the compensation wasn't enough for an Austin.
Shirty 20th August 2012, 13:37 Quote
It's a shame, because with the right infrastructure and pricing system this service would work unbelievably well.

South Korea enjoy average speeds of 17.5Mbit/s whilst we languish at a laughable 2.3, and I enjoy even lower speeds thanks top a technologically handicapped rural exchange. If they could get enough customers on board then the pricing would become less of an issue, but they're a decade or so ahead of themselves in the UK and US.
sotu1 20th August 2012, 13:37 Quote
Christ, and you guys thought EA was bad....
Necrow 20th August 2012, 14:09 Quote
Quote:
The stockholders, meanwhile, get bupkis: only assets were transferred to OnLive-2, meaning that investors in OnLive-1 have just seen their money disappear and their shares rendered worthless. Shares in OnLive-1 will not, in other words, be exchanged for shares in OnLive-2..

No one will ever invest another single penny with this company, the word dodgy is not dodgy enough to describe this wangling
DragunovHUN 20th August 2012, 14:39 Quote
Well, that's all of us never touching onlive again. Not that a lot of us used it in the first place.
PingCrosby 20th August 2012, 14:48 Quote
Its no wonder kids are actually born cynical these days rather than sliding gently into it with age and wisdom
Krikkit 20th August 2012, 15:06 Quote
Quote:
Originally Posted by Phil Rhodes
Am I the only person who suspects that "reduced compensation" means a slightly less generous spec of company Jag will be seen in the car park?

This is incredibly common in the film and TV industry, as well as things like live events and music concerts. I'm self-employed and I've both lost money personally, and had clients of mine literally bankrupted by this sort of behaviour.

Don't believe for a second that the only people who lost out were a few share-holding pension schemes. It would be reasonable to suspect they screwed individuals just like me - and I suspect like some of the people who write for this site, who also seem to be freelancers - out of thousands.

The only people who win in these situations are the jaguar-driving *******s in the pink shirts and the nice offices who run the company. It's despicable. I'm astonished there isn't some sort of legislation preventing it from happening, but as it's a manoeuvre typically used by rich people to stuff less rich people, I can't see a Tory government giving a damn.

Why do they all drive Jags? Plenty of other executive car marques out there. :p

They're *******s, but only because the rules allow them to be so transparently. Surely that means there's something wrong with the system as well?
BLC 20th August 2012, 15:19 Quote
Quote:
Originally Posted by Krikkit
They're *******s, but only because the rules allow them to be so transparently. Surely that means there's something wrong with the system as well?

Precisely. As bad as they are for doing it, they're exploiting a loophole available to them. They may have effectively stopped any chance of future investement ever again, but they can get away with it debt-free.

Don't hate the player, hate the game.
faugusztin 20th August 2012, 15:35 Quote
http://www.engadget.com/2012/08/20/htc-lose-its-40-million-investment-onlive/
Quote:
As cloud-based gaming service OnLive struggles to reform itself and cope with its pricey infrastructure, HTC's $40 million investment made last year will disappear completely, according to a recent filing to the Taiwan Stock exchange.

I am pretty sure they will make the life of OnLive guys miserable.
DaBigDog 20th August 2012, 16:21 Quote
Quote:
Originally Posted by BLC
As bad as they are for doing it, they're exploiting a loophole available to them. They may have effectively stopped any chance of future investement ever again, but they can get away with it debt-free.

Don't hate the player, hate the game.

Really BLC?- just because you can do it - it's OK too? When did running a business exclude people from any moral obligations, they have effectively screwed investors of $40m by doing this.

It should be less OnLive-2 and more InJail-NOW

They've had to do this because either they're not good enough at running the business as is or the market isn't interested in it - either way it should have been left to die.

If you can't make a business work when your given $40m to fund it, you really shouldn't be in business.
Blazza181 20th August 2012, 16:27 Quote
Quote:
Originally Posted by BLC
Precisely. As bad as they are for doing it, they're exploiting a loophole available to them. They may have effectively stopped any chance of future investement ever again, but they can get away with it debt-free.

Don't hate the player, hate the game.

It's less of a loophole, more an intentionally created system, to protect entrepreneurship.

http://en.wikipedia.org/wiki/Phoenix_company
tonyd223 20th August 2012, 16:33 Quote
Packaged Insolvency? I hope the government closes this loophole because of public pressure. I will NEVER work with or for a company who has done this...
Gareth Halfacree 20th August 2012, 16:55 Quote
Quote:
Originally Posted by tonyd223
Packaged Insolvency? I hope the government closes this loophole because of public pressure. I will NEVER work with or for a company who has done this...
Trouble is, you can't. Not without serious damage to the market, anyway.

Let me put it another way: would you risk everything you own, including re-mortgaging your family home and taking out massive personal loans, to start a business which could make you a bajillionaire but which could also lose you everything - with the odds stacked against the former in favour of the latter?

If you said yes, and the business failed, once you'd clawed your way back up from the massive pit of debt and homelessness that ensued, would you do it again?

An entrepreneur - let me rephrase that, a successful entrepreneur - is someone who answered "hell yes" to both questions. Look at good ol' Sir Clive: business after business went bankrupt, but he kept on going. Sinclair Radionics became Science of Cambridge became Sinclair Research (okay, that was a rename rather than a bankruptcy, but still) became Sinclair Computers and Sinclair Vehicles became Cambridge Computers (after he sold the ashes of Sinclair Computers to Amstrad) became Sinclair Research again. Incidentally, Sinclair Research is still ostensibly going, albeit with just Sir Clive at the helm - he's been making overtures in the electric vehicle market again with the X-1.

When he allegedly tricked the taxpayer into funding the failing Sinclair Radionics and pushed the money he got from the administration (£10,000 from the National Enterprise Board as a golden handshake when the company was broken up) into what would become Sinclair Research, any sane person would have been up in arms - here's a man who was given taxpayer's money, failed to return a profit and is now taking that cash and setting up a separate business from which the government won't see a single penny beyond VAT and corporation tax payments. It's not a million miles away from what OnLive is doing now, in fact - except in OnLive's case, its investors were all private companies rather than government initiatives.

So why did we let Sir Clive go ahead and phoenix his companies? Simple: because if we didn't let Sir Clive and his contemporaries invent the future, no bugger else was going to. Nobody else was crazy enough to risk everything - at the height of his financial troubles, Sir Clive lost his family home and his marriage broke down - on a gamble at creating something new and exciting. Sure, not everything he did was a resounding success - if he hadn't plowed all his money into the C5, Sinclair Computers would probably still be around today making ultra-affordable IBM-compatibles - but this is the man who was the driving force for getting computers to the point where they were affordable for use in the home. Without the sub-£100 ZX80 and ZX81, and the £125 Spectrum, Commodore, Atari, hell even IBM would have kept their prices at around the £500-£2,000 mark and computers in the home would never have happened.

Now, I've gone a bit off-topic here, and I'm in no way saying that anything OnLive has done is as important or revolutionary as Sir Clive and his ilk - but I am pointing out that if you create a rule that prevents scammers from reforming, you'll also prevent true entrepreneurs from recovering from their failures - and in doing so potentially rob the world of some truly groundbreaking innovations.
Krikkit 20th August 2012, 16:58 Quote
Excellent points Gareth, and precisely why the system won't be changed. Just nice to let out a bit of rage from time to time. :)
BLC 20th August 2012, 17:30 Quote
Quote:
Originally Posted by DaBigDog
Really BLC?- just because you can do it - it's OK too? When did running a business exclude people from any moral obligations, they have effectively screwed investors of $40m by doing this.

It should be less OnLive-2 and more InJail-NOW

They've had to do this because either they're not good enough at running the business as is or the market isn't interested in it - either way it should have been left to die.

If you can't make a business work when your given $40m to fund it, you really shouldn't be in business.

I think Mr Halfacree just put it far better than I could ever hope to achieve.
fdbh96 20th August 2012, 19:41 Quote
First of all, its nice to see that Bit-tech actually got the full story before posting the article, and secondly, where does the debt go? What do they lose by forming a new company?
faugusztin 20th August 2012, 19:49 Quote
Quote:
Originally Posted by fdbh96
First of all, its nice to see that Bit-tech actually got the full story before posting the article, and secondly, where does the debt go? What do they lose by forming a new company?

The debt stays at original company, which now has no assets. At all. So all the creditors are left with unpaid debts, which never will be paid. Company will go in liquidation, where the liquidator will find out that company has no money, no assets. Some minor money will have to come from the guys who own the company, but that sum is usually limited - Ltd type of company for example needs to have only 5k€ money for company liquidation in my country. If company has no assets, 5k€ is all the debtors can get all together.

What did they lose ? Debts :). And some partners who will never do business with the again. And probably no one will trust them now.
fdbh96 20th August 2012, 19:51 Quote
Quote:
Originally Posted by faugusztin
The debt stays at original company, which now has no assets. At all. So all the creditors are left with unpaid debts, which never will be paid. Company will go in liquidation, where the liquidator will find out that company has no money, no assets. Some minor money will have to come from the guys who own the company, but that sum is usually limited - Ltd type of company for example needs to have only 5k€ money for company liquidation in my country. If company has no assets, 5k€ is all the debtors can get all together.

What did they lose ? Debts :). And some partners who will never do business with the again. And probably no one will trust them now.

Seems a bit harsh for the people that lent them money :/
Showerhead 20th August 2012, 20:18 Quote
That's the risk you take investing in a startup.

Wonder if we can form a new company transfer all the U.K.'s assets to it and leave the debt with the old U.K.
faugusztin 20th August 2012, 20:32 Quote
Quote:
Originally Posted by Showerhead
Wonder if we can form a new company transfer all the U.K.'s assets to it and leave the debt with the old U.K.

It is called default and last 2 years we are trying to avoid it in Greece (sort of, as they partially did it already) :
http://en.wikipedia.org/wiki/Sovereign_default
Somer_Himpson 20th August 2012, 23:15 Quote
Cloud computing= your computer, somewhere else, where you havve no control...bollocks.
On-Live...just die.
ccxo 21st August 2012, 03:04 Quote
So how long till On-Live 2 becomes On-Live 3 as i cannot see any investment group providing them with any funding after the first lot of investors lost their investment.
iwod 21st August 2012, 04:51 Quote
Well, in that case i guess not a single Gaming Company will work with them in the foreseeable future.
Gareth Halfacree 21st August 2012, 08:54 Quote
Quote:
Originally Posted by ccxo
So how long till On-Live 2 becomes On-Live 3 as i cannot see any investment group providing them with any funding after the first lot of investors lost their investment.

Actually, they've already received their first investment - from a Lauder Partners affiliate, which is the same investment group as plowed money into OnLive-1.
Blazza181 21st August 2012, 11:00 Quote
Quote:
Originally Posted by Gareth Halfacree
Actually, they've already received their first investment - from a Lauder Partners affiliate, which is the same investment group as plowed money into OnLive-1.

The.... WHAT? I'd rather invest in Anne Widdecome Pornographic Enterprises than OnLive-2!

Sent from my Orange San Francisco using Tapatalk
azrael- 21st August 2012, 11:20 Quote
I'm certain the managers of said investment group have made sure to only invest their clients' money in this scheme OnLive-2.
cebla 22nd August 2012, 09:24 Quote
I think something everyone is forgetting here is that OnLive-1 was going to go out of business and the investors were going to lose everything anyway as by the sounds of it they couldn't pay the bills. All they have really done is found a nice way to start a fresh company doing similar things but without the debt burden.
azrael- 22nd August 2012, 09:28 Quote
Quote:
Originally Posted by cebla
I think something everyone is forgetting here is that OnLive-1 was going to go out of business and the investors were going to lose everything anyway as by the sounds of it they couldn't pay the bills. All they have really done is found a nice way to start a fresh company doing similar things but without the debt burden.
Well, that is _exactly_ what we're not forgetting. A company not being able to cope ditches all debts and starts over doing the exact same thing.
Harlequin 22nd August 2012, 09:42 Quote
ofc the investmant company will happily use the example of online-1 as a tax break , whilst it seems the investors are raged becaise of lost money , reality is the clients of said company are laughing as they can use the amount (likely along time ago) as a tax break - thus they have `earnt` many more times the now lost investment allready in savings
cebla 22nd August 2012, 09:56 Quote
Quote:
Originally Posted by azrael-

Well, that is _exactly_ what we're not forgetting. A company not being able to cope ditches all debts and starts over doing the exact same thing.

Yes, but what I'm saying as miffed as the investors may be over losing their investment they probably don't care so much that a phoenix company was created.
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