NEW DELHI :Three Indian directors of Hyderabad-based DQ Entertainment International Ltd’s Irish subsidiary have been held to be personally liable for the company’s debt, totaling about $30 million.
The Commercial Court in Ireland in a recent ruling said it had found the three directors–Rashida Adenwala, Tapaas Chakravarti, and Sanjay Choudhary–to have knowingly engaged in business activities with the intent to defraud creditors or for other fraudulent purposes.
The court held them accountable for misappropriation of company funds, mishandling company assets, committing misfeasance, and breaching trust and duty, among other charges.
No legal action was taken against the remaining two Irish directors of DQ Entertainment Ireland Ltd (DQE), Leo Condron and Dominic Poole, as the petitioner had reached a settlement with them.
The court also highlighted a lack of proper accounting records as contributing to the company’s inability to settle its debts and creating uncertainty regarding its assets and liabilities.
DQ Entertainment was listed on the Alternate Investment Market in London and on the Bombay Stock Exchange in the late 2000s, emerging as India’s largest animation company. It initially gained prominence by producing content for Walt Disney and Warner Brothers, and later acquired the rights for Jungle Book and Peter Pan.
At its peak, the company employed 3,500 people.
However, DQ Entertainment began facing challenges in the early part of the previous decade as it struggled for growth, even as its borrowings increased. Eventually, in June 2022, the company faced insolvency proceedings initiated by Exim-Import Bank due to outstanding dues totaling ₹25.5 crore.
The company failed to revive, and had to let go of many employees due to its inability to pay their salaries. Subsequently, in September this year, the Committee of Creditors (COC) approved a decision to liquidate the company.
Several petitions have been filed in the Irish court against all five directors of the company, including one from Powerkids, an investment company owned by OCP Asia (Singapore) PTE Ltd. Madison Pacific Trust Ltd, a trustee company holding legal interest in certain bonds and security on trust for Powerkids, was also added to the proceedings in 2021.
The petitioners argued in the Ireland High Court’s business division that DQE had been insolvent since March 2017, despite operating at a loss since 2015 and receiving support from DQE India. The petitioner claimed that over $61 million was transferred out of the company to DQE India and specific payees between 2010 and 2016, with transactions lacking proper supporting documentation.
It was also alleged that Singapore-based company QL effectively loaned funds to DQE Ireland, and about $42.3 million remained owed to the firm’s creditors. QL provided loans through a bond purchase agreement with another DQE company in Mauritius, which holds a 75% in the Indian parent. In 2014, DQE Ireland provided security over all its assets in consideration for the obligations of DQE in Mauritius.
One of the petitioners claimed that certain assets recorded in the Irish company’s accounts did not exist, significantly devaluing the security held by QL. Allegations included the inflation of asset values, with payments for non-existent assets such as the ‘Jungle Book’ franchise for around $26.2 million.
According to the petitioners, the company also purportedly made a payment of $4.19 million to a UAE-based firm named Pink Feather Production LLC to secure distribution rights for ‘The New Adventures of Lassie’. However, it was revealed that Pink Feather lacked the intellectual property rights to Lassie, rendering the payment invalid.
Furthermore, an $8.08-million payment was allegedly made to Galway Films to produce Peter Pan, although Galway Films did not possess the rights to this property either.
In addition to these transactions, there were several co-production agreements with a company called Method Animation SAS. However, these agreements are alleged to have been falsified and concocted, artificially inflating DQE’s intangible assets by around $4.48 million, according to the petitioners.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
