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Film companies wound up for misleading investors (7 October 2016)

Date: 07/10/2016
Duncan Lewis, Legal News Solicitors, Film companies wound up for misleading investors

The High Court has wound up two film investment companies which took £3 million from the public without providing any returns.

The High Court wound up the companies following an investigation by Company Investigations of the Insolvency Service.

Spice Factory (UK) Limited and Gummy Bear Films Limited were wound up in the public interest, after the companies misled the public – and spent, at most, 11% of funds received from the public on film production.

The remainder of the money was divided between the brokers who recruited investors, the director Michael Cowan, his former business partner Steven Wilkinson and companies they controlled.

The court heard that private individuals had entered into investor agreements with Gummy Bear Films Limited after introductions by brokers.

It was intended that these private investment funds would receive an equity profit in a film – Gummy Bear 3D The Movie – which has not been made.

The court heard that the funds received from investors were not ring fenced or safeguarded in any way – and were either paid into Spice Factory’s current account, where they were treated as general income of the company; or via escrow accounts to various third parties.

Cowan allowed Wilkinson – who was at the time an undischarged bankrupt – to operate Spice Factory’s bank account without Cowan, the company’s director, exercising any oversight or control.

The court ruled that the public had been misled into making investments which they would not have made had they known the truth – which was that around 89% of their investment was not going to film production costs.

It was found that the companies had failed to operate the business with transparency as a result of Cowan’s delegation of financial control to Wilkinson – and had failed to take steps to establish whether members of the public were “high net worth individuals” or “sophisticated investors”, which represented a failure to protect the interests of those who had entrusted their money to them.

David Hill – a chief investigator at Company Investigations – said:

“The companies persuaded members of the public to part with substantial sums of money to invest in films – no films were produced and the money raised from the public, in reality, was used to benefit those running the companies.

“As so often is the case, if an investment scheme appears to be too good to be true, it probably is.”

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