Edwin Coe | Eclipse Partnerships Legal Claims

Introduction

Edwin Coe has been instructed by a group of investors in a number of the Eclipse Partnerships to bring proceedings to recover losses incurred due to their participation in these partnerships. These investors are also represented by tax specialists Newport Tax Management LLP.

The Eclipse Film Partnerships were a series of film financing schemes conceived by HSBC and promoted by Future Capital Partners (formally known as Future Films Ltd) between 2003 and 2007. They were marketed as a tax efficient vehicle for investment in future returns on film rights on studio made films, creating a tax deferral benefit.

Investors paid significant sums into the schemes, and entered into loan agreements with the designated lending banks to buy the film distribution rights to Disney films. The lending banks were Bank of Ireland and Barclays.

Investors were promised significant tax relief, on the basis that that the transactions they were entering into were bona fide investments in the film industry, and that the scheme structure and its component parts had been subject to due diligence by those drafting the scheme documentation and participating in the sale and leaseback of the film rights.

HMRC Investigation

HMRC investigated the partnerships, primarily on the basis that the partnerships were not trading and that they were not and had never been trading with the ‘intention of making a profit’. In May 2012 the First-Tier Tax Tribunal held that Eclipse Film Partners No. 35 (and thus all the Eclipse partnerships) was not carrying on a trade but instead a “nontrade business”, and that relief on loan interest payments could not therefore be claimed, while profits flowing to members remained fully taxable. The determination was upheld in both the Upper Tribunal and the Court of Appeal.

Members face the prospect of tax demands far in excess of any taxable benefit they received from their participation in the schemes. HMRC has made it clear that it intends to pursue members for payment of tax, penalties and dry tax and interest. As yet the matter is not resolved. If you have questions on the tax consequences contact Newport Tax Management on 0203 358 3308.

The Redress Claim

The claim focuses on the trading status of the various Eclipse partnerships, their construction, marketing and execution. These include everything from the nature and existence of financing involved and the use of investor’s capital, to the ultimate ownership of the film rights and the availability and reality of the purported revenue.

Both Edwin Coe and Newport believe that investors were misled as to the true nature of the structure in the Eclipse partnerships as executed. Had the true nature been known the schemes would not have proceeded at all and no individual would now be left with the tax and other losses flowing from the schemes. The Redress action seeks to recover all losses currently known and any prospective losses such as those derived from “dry tax”. Leading and junior counsel have been engaged and have advised on the claim.

Investors should have received direct communication in relation to the redress claim but if not please contact David Greene (David.Greene@edwincoe.com) from Edwin Coe (020 7691 4000) or Nick Wood of Newport Tax Management (020 3358 3308).

This web page does not provide individual advice; liability and recoverable loss will be the subject of individual circumstances. No waiver is made herein whether expressly or by implication of any privilege attaching to advice given or to be given to investors by either Edwin Coe or Newport Tax Management or any other relevant privilege.