Investors in Handmade film company lost millions after being seriously misled by what a judge called ?a lack of candour" by the directors
Three directors of Handmade Limited, a film company have been disqualified for a combined 22 and a half years.
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.
Messrs Meehan, Ravden and Parkinson were directors of Handmade Limited which entered administration on 11 July 2012 and liquidation on 24 April 2013. Handmade Limited (Handmade - formerly Handmade Plc, encompassing Handmade Films International and Handmade Film Productions) was an international rights and film production company.
Mr Meehan was the principle director and shareholder and, with Mr Ravden and Mr Parkinson, formed an inner circle that controlled information and the affairs of Handmade. A court found Mr Meehan instigated, while Mr Ravden and Mr Parkinson accepted that they failed to take sufficient steps to stop, the following:
Handmade obtaining $5m to fund a film project that had already been cancelled and using some of the moneys to pay off relatives of one of the directors
Handmade disclosing all its debts in an Alternative Investment Market (AIM) prospectus to raise $17 million, and then expended the moneys raised thereafter on matters undisclosed to advisers, shareholder or potential investors
Abandoned film project funding
In 2008, Mr Meehan suggested to an investor company that they make an investment in a Handmade film production. The investor company subsequently invested $5 million into a special purpose vehicle (SPV) through which investments for the film production were channeled. The funds were placed in an account in the name of Handmade plc and the SPV.
The proposed star of the film, had been injured in car accident and, on 4 September 2008, production was abandoned.
On 8 September 2008 the investment company transferred $5 million into the named Handmade/SPV account. They were not 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 $5 million.
Moneys raised through AIM
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 prepared 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 moneys raised. The AIM funding was completed on 17 November 2009, resulting in $17 million being available to Handmade.
In December 2009, a new Chief Executive and Operating Officer (CEOO) of Handmade took office and when the CEOO saw Handmade?s financial information, it was clear that significant payments had been made that had not formed part of the Placing Announcement.
The concerns raised by the new CEOO 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.
Commenting on the disqualifications, Joanne Covell, Chief Investigator at the Insolvency Service, said:
Directors have a duty to ensure that the procedures they construct and oversee comply with the law. Directors who do not comply with this basic obligation can expect to be investigated by the Insolvency Service and enforcement action taken to remove them from the market place.
The activity uncovered pertains to personal and corporate probity in permitting the obtaining of significant funds ($22 million) on the basis of a false prospectus (the AIM placing) and false statements (film production) and then using those moneys in ways other than described. The facts were known to the three disqualified directors and they chose to make mis-statements and/or omit relevant facts when it suited them.
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.