A troubled theatre and film investment company chaired by the former BBC boss Lord Grade that made “unexplained” loans to the Duchess of York has been placed in administration after a bitter high court battle.
Gate Ventures, which has backed shows including 42nd Street and Sunset Boulevard, owed shareholder and creditor Zheng Youngxiong £2.5m it could not pay.
The company – which was in a joint venture with Sarah Ferguson’s upmarket Ginger & Moss tea, dinnerware and jewellery brand – made “unexplained” business and personal loans to Ferguson of more than £500,000. This included a loan to her personally of around £288,000, the high court heard.
In his ruling, Judge Prentis noted the company could not say “what sums, if any” of the £288,000 were due to be repaid by Ferguson, a director of Gate Ventures until December 2019. “There must be a substantial issue over this loan, its nature and its recoverability,” he said.
Gate Ventures had raised £24.5m from some 3,500 investors, mainly Chinese, but had losses of £19.5m and was a company which “has struggled”. But though it had cash flow problems it was solvent, said Prentis.
In conjunction with Zheng, known as Quentin, it had raised $10m (£8.1m) from a series of roadshows to target investors in the Far East, including in Macau, one of the world’s gambling hotspots.
The presence of Michael Grade and Ferguson at the roadshows had helped promote an image of “backing at the highest level of the British establishment and British society,” the judge was told.
But the $10m raised by Zheng through the roadshows never reached Gate Ventures. Grade told the court the company had issued a claim over the money against Zheng. He also claimed there had been allegations uncovered by lawyers in China for Gate Ventures of Zheng’s involvement in “pyramid selling activities”.
Gate Ventures had wanted to go into members voluntary liquidation, where shareholders can appoint a liquidator to formally close down a solvent company, instead of administration. The dispute over the $10m was among reasons it had fought the administration order, Grade told the judge. “We think the shareholders of Gate are innocent victims of a quite serious fraud. And we are concerned that is exposed, and that value is realised,” Grade said.
The company had been caught in the middle of a bitter fall-out between Zheng and Gate Ventures’ former chairman, the Hong Kong businessman Dr Johnny Hon, Grade said.
Zheng’s case alleged mismanagement, claiming directors had breached their duties to the company “through negligence and/or by failing to act in good faith” and “sought to exploit the company for their own personal interests.”
Among transactions his lawyers questioned were £4.7m in invoiced expenses to Hon, which included lavish meals for ambassadors, politicians, and fashion brands in Washington, New York and Paris, and which allowed Hon to “indulge in jet-setting, high fashion and political meetings”, at the expense of the shareholders, the judge heard.
The judge highlighted several of Hon’s invoices which he questioned whether could be said to be of benefit to the company’s film and theatre interests, and described as “simply extraordinary”. One invoice listed was for a “lunch with Tommy Hilfiger in New York City or Los Angeles plus $1,000 shopping spree at flagship store in NYC”.
Another was for a “private after-hours tour for four of the Chateau de Versailles”. Yet another included a “one hour training session with Victoria’s Secrets Angel Adriana Lima and celebrity trainer Michael Olajide jr at Aerospace in NYC”. The judge remarked: “No doubt a very invigorating exercise for everybody but not immediate company business.”
He added: “There may be good answers but on the face of it these are remarkable transactions which are well outside the company’s business.”
Matthew Parfitt, for Zheng, had argued “this is a company losing money hand over fist”, while Edward Davies QC, for another shareholder, had said the company “needs to be put out of its misery” and that it had “lost the plot”.
There were “warring sides” in the legal battle, the judge noted, ruling that the administration route was the preferable option.
Grade had been forced to address the judge in person because the company’s legal advisers had quit at short notice due to doubts the company could pay its fees.
