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Shareholder defrauded firm linked to Sarah Ferguson, court told Company that loaned Sarah Ferguson £500,000 goes into administration
(about 4 hours later)
Michael Grade says investor wants to bring company down to avoid $10m investigation Gate Ventures, chaired by former BBC boss Michael Grade, was subject of bitter court battle
An entertainment company chaired by Michael Grade which made “unexplained” business and personal loans to the Duchess of York, was the “innocent victim of a quite serious fraud” by a shareholder now determined to bring the company down, a court heard. 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.
Lord Grade, the former BBC and ITV boss, and chairman of Gate Ventures, which is fighting administration, told the high court that shareholder Zheng Youngxiong’s actions were motivated by a wish to avoid investigation into $10m he had raised for the company, but had failed to pay. Gate Ventures, which has backed shows including 42nd Street and Sunset Boulevard, owed shareholder and creditor Zheng Youngxiong £2.5m it could not pay.
Zheng, known as Quentin, is owed £2.5m by Gate Ventures, which has backed shows including 42nd Street and Sunset Boulevard, and which wants members’ voluntary liquidation. 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.
Zheng is fighting a high court battle to bring administrators in, claiming investigation is needed into loans and payments, including those of more than £500,000 to Sarah Ferguson, a former director, and £4.7m expenses paid to the former Gate Ventures chairman and Hong Kong businessman Dr Johnny Hon, who resigned in December 2017. 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.
Grade told Judge Prentis that subsequent investigations by Chinese lawyers employed by Gate Ventures found alleged evidence against Zheng “of organising and leading pyramid selling activities”. 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.
He argued that Gate Ventures, which has a cashflow problem, was caught in the middle of an acrimonious fallout between Zheng and Hon. “We are very much the meat in the sandwich of a very bitter row between these two men,” he said. 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.
Zheng has alleged mismanagement, claiming directors have “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”. 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.
He wants administrators to investigate the company’s transactions, including the loans to Ferguson, and the expenses to Hon which, he alleges, allowed him to “indulge in jet-setting, high fashion and political meetings”. 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”.
Grade said Gate Ventures was opposed to an administration because “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.” 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.
At the centre of the allegation was $10m Zheng had raised for Gate Ventures from a “fan club” of thousands of Chinese investors, but of which it had seen no money. The company had launched a claim against Zheng over the money, the lack of which had contributed the company’s immediate problems, he 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.
Grade said he and Zheng had a “shake hands agreement” over the $10m, but the relationship broke down over “difficult questions [Gate] was duty-bound to ask”. 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.”
“Zheng must have concluded that the only way out of providing answers to those questions was to bring the company down,” Grade said. 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.
Addressing the judge in person, as Gate Ventures’ legal advisers quit at short notice this week, Grade said it had been very difficult “sitting here having considerable quantities of sand kicked in our faces”. 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”.
“It would have been unbearable,” he said, “but for the fact that the allegations levelled against us were based on highly selective misreading of the facts.” 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.”
Grade said loans to Sarah Ferguson, who resigned as a director in December, had been “disclosed”. 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.”
He argued Zheng was “happy for Hon to be on social media meeting the rich and famous all over the world” promoting the company. 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”.
He claimed Zheng was now using the $10m to fund legal action against Gate Ventures “possibly in the hope he acquires its assets at reduced price”. Zheng had already made an “opportunistic $1m bid” which had been refused, he said. There were “warring sides” in the legal battle, the judge noted, ruling that the administration route was the preferable option.
He told the judge: “Without the existing board, there really isn’t a business either to administer or to rescue.” The company had specialist assets. He could not, for example, “see the administrators putting on Sunset Boulevard”. 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.
He requested one month to chase potential investments, including from one interested businesswoman, with businesses in cosmetics and pharmaceuticals, who he said had given $34m to the Clinton Foundation.
The case continues