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Film company directors disqualified for total of 22-and-a-half years after misleading investors (21 February 2017)

Date: 21/02/2017
Duncan Lewis, Legal News Solicitors, Film company directors disqualified for total of 22-and-a-half years after misleading investors

An Insolvency Service investigation has resulted in three directors of international film company Handmade Films being disqualified for a total of 22-and-a-half years, after a judge found that investors had been misled.

Handmade Limited – formerly Handmade Plc, encompassing Handmade Films International and Handmade Film Productions – was an international rights and film production company.

Patrick Anthony Meehan, David Bernard Ravden and Peter William Parkinson were directors of Handmade Limited, which entered administration on 11 July 2012 and liquidation on 24 April 2013. Meehan was the principle director and shareholder – with Ravden and Parkinson, he formed an inner circle that controlled information and the affairs of Handmade.

A court found Meehan instigated, while Mr Ravden and Mr Parkinson accepted, that they failed to take sufficient steps to stop Handmade obtaining $5m to fund a film project that had already been cancelled – and using some of the monies to pay off family members of one of the directors.

The trio also failed to take sufficient steps to stop Handmade disclosing all its debts in an Alternative Investment Market (AIM) prospectus to raise $17 million, and then expending the monies raised on matters undisclosed to advisers, shareholder or potential investors.

In 2008, Meehan suggested to an investor company that they make an investment in a Handmade film production. The investor company subsequently invested $5m into a special purpose vehicle (SPV), through which investments for the film production were channelled. The funds were placed in an account in the name of Handmade plc and the SPV. However, the proposed star of the film was injured in car accident and on 4 September 2008 production was abandoned. On 8 September 2008, the investment company transferred $5m into the named Handmade/SPV account without being informed that the production had already been abandoned.

Subsequently the funds held in the Handmade/SPV account were transferred to Handmade and used for other purposes without the investment company’s knowledge or permission. No monetary repayment was made by Handmade to the investment company, which lost all of its $5m.

In October 2008, Handmade approached a nominated adviser and broker (NOMAD) and asked it to assist in relation to a fundraising via the AIM sub-market of the London Stock Exchange to fund the acquisitions of a New York based animation company and enter into a joint venture with an America based television brand. A major accountancy firm was retained by the NOMAD and Handmade to carry out an independent review of financial projections by Handmade, to prepare a Working Capital Report (WCR). Copies of investor presentations and a legally required circular to shareholders and placing announcement described the purposes for which Handmade intended to use the monies raised. The AIM funding was completed on 17 November 2009, resulting in $17m being available to Handmade.

In December 2009, a new Chief Executive and Operating Officer of Handmade took office and on seeing Handmade’s financial information, it became clear that significant payments had been made that had not formed part of the Placing Announcement. The concerns raised by the new CEO & COO resulted in Handmade’s shares being suspended and insolvency advice was taken in January 2010. In February 2010, the accountants who prepared the WCR issued a report, which set out multiple matters that had not been reflected in the projections provided to them by Handmade – either during the preparation of the WCR or at any time prior to the AIM placing.

Patrick Anthony Meehan has been disqualified from acting as a director for 13 years, David Bernard Ravden has been disqualified from acting as a director for five-and-a-half years, and Peter William Parkinson has been disqualified from acting as a director for four years, following an investigation by the Insolvency Service. It was found that investors in Handmade film company lost millions, after being seriously misled by what a judge called “a lack of candour” by the directors.

Chief Investigator at the Insolvency Service, Joanne Covell, said:

“Taking action against the these three directors is a warning to all directors to seriously consider, and ensure they perform, their duties and obligations and not hide behind the corporate veil or claim ignorance of facts. Taking undue risks with the money of others has consequences.”

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