Raising Money For The Pope: Film Financing In The British Virgin Islands

As a contender for the Palme d'Or at the 2011 Cannes Film Festival, "Habemus Papam", which is Latin for "We Have a Pope", the Italian comedy-drama directed by Nanni Moretti and starring French actor Michel Pioccoli, still needs to raise capital to make a profitable international run. The traditional means of film financing, such as debt financing, equity financing and hedge funds have either metamorphosed into more creative structured financing models or are giving way to entirely new financing models such as small private investor funding through online media. Capitalizing a film from production to distribution is critical to a successful film and there are several innovative structures involving entities established in the British Virgin Islands ("BVI") that can be utilized.

Sale and Lease-Back Financing

A fairly recent means of film financing involves a production company entering into a sale and purchase agreement ("SPA") for the copyrights in a film with a subsidiary established in the BVI. The BVI subsidiary then uses the copyright as securitized assets in a loan agreement with a financing institution then leases it back to the production company for a percentage of the original sale. This method has become more popular with high-budget films since the legal and administrative costs of setting up such a structure may prove prohibitive for the more lower-budget film. Additionally, the 10 – 15% distribution fee on the budget of the film that normally includes territorial distribution rights where there is a collection of distribution agreements in different countries or more typically worldwide rights held by a single distribution company, plus the marketing costs before profit, makes this highly unattractive for low-budget films.

A critical consideration in a sale and lease-back financing involving a BVI company is section 175 of the BVI Business Companies Act, 2004. If the copyrights being leased back would be more than 50 percent in value of the assets of the BVI company, then the lease must be approved by the directors of the BVI company, and details of the lease must then be submitted to the shareholders for their approval. Where shareholder approval is to be obtained at a shareholders meeting, then the notice calling the meeting must be accompanied by an outline of the lease and this must be given to every shareholder, whether or not they are entitled to vote on the lease. However, if the shareholder approval is only to be...