Methodology, Skills and Professional Benefits Participants Participants' Comments MEDICI Coordinator and Head of Studies «The 12 Labours of Hercules» Report of the Reports – Workshops 1 to 4

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Fifth Workshop – Tuesday 29 September to Thursday 1 October 2015 in Santpoort, Netherlands

Module 3 – Co-productions: Legal and Financial Issues

Co-production means putting together different business practices and requirements from all partners (incl. funds, distributors, private funds, etc.). It means, for both producers and funds, a lot of paperwork and sometimes hard negotiations (mainly recoupment).

Or, in other words:

Pierre Emmanuel Mouthuy, lawyer – Belgium

Please also see Pierre Emmanuel Mouthuy’s presentation (PDF)

Financial Issues

1. Set-up of co-productions

Co-productions can be set up in three different ways when it comes to financing:

  1. Co-production treaties are rigid and necessitate creative contributions from the producers. Minimum participation is usually 20%.
  2. Financial co-productions with exclusively financial contributions. Minimum participation is usually 10%.
  3. Co-productions entirely financed by sales agents are commissioned and always made with low risk since sales agents invest their own money.

➔ What is important for funds to validate and check before closing the financing?

2. Cash-flow issues

Once the financing is closed, the cash-flow issues appear. Producers get the money from different funds and other sources but how do they cash flow them?

➔ The ways to overcome cash-flow issues:

  1. Coficiné and Cofiloisir: as financial institutions (not banks), they are specialised in cash flowing audiovisual projects without taking away any rights from a project. Based in Paris, the two companies used to work only with French producers but have started to be more and more involved in co-productions, even without a French producer.
  2. Collection agreement: Eurimages requires a collection agreement for films with budgets of over 3 million Euros. However, legally speaking, it covers only the allocation of the revenues among the financial partners.
  3. European guarantee funds: in place since almost 2 years, has only been successful in a couple of European countries.
  4. Completion bonds: mostly in the Anglo-Saxon world (UK, Ireland, Canada, USA). It guarantees the delivery of the film but is too expensive for continental European countries, since it takes 5 – 10% of a budget.
  5. Escrow is the account where money stays until all the contracts are signed. It involves an escrow lawyer, escrow guarantor and enables everybody to take a look into each other’s payments. However, it is practiced only in the Anglo-Saxon world, almost never in continental Europe.
  6. Interparty agreement (IPA) is an agreement between funders, producers, sales-agents and completion bonders. Such agreements exist if a completion bond is involved. IPA ensures that everybody speaks with each other. It, legally speaking, may help resolve a lot of issues regarding cash flow, sales agents, MGs, waterfall, etc. Such agreements define clearly everybody’s duties and track down more easily the ones who break it.
  7. Specific purpose companies (SPV) per film: is required by some of the public funds or tax incentives in order to decrease the threat that the money will go to other projects within the same company.

Legal Issues

Securing financing for co-productions implies no real legal issues since it is easier to go bankrupt than to end up in court. It is mostly business issues that you need to translate into legal terms to protect and balance the responsibilities of both the minority and majority co-producer:

Legally speaking, every co-production needs to have a delegate producer as the leader.

Compliance with public funds requirements

Bunch of Wimps

Outcome of the group discussions

Recoupment position of public funds

Swedish Film Institute
They have a very soft recoupment scheme recouping under 125%, but hardly ever reaching that. Generally speaking, they are short of people who would deal with recoupment and collect recoupment money. They choose the films that are expected to earn some money and assign collecting agents only to them.

Norwegian Film Institute
They have a revolving system. They give the recouped money to producers for their next films. This applies to majority co-productions and national films.

Luxembourg Film Fund
They are the first within the recoupment scheme. The recouped money is transferred to the producer’s account for the development or production of his/her next project supported by the Luxemburg Film Fund. It is a way to strength their producers’ position towards other financiers and partners.

Irish Film Board
They invite producers to negotiate the recoupment schemes with them because producers know that most of the recouped money will eventually come back to them.

Wallonia Brussels Federation
Their fund recoups on 50%. Some funds, like the Belgian regional fund Wallimages, recoup in first position even if private equity investment is involved. Recoupment could be easier if public funds would simply ask for 15% on the net receipts in the first position and also oblige equity investors to stick to it. But, in reality, given that some funds do not recoup and others recoup at different stages, it is up to the funds to be strong in determining their position.

Conflict situations

Forced Co-Prodution

Croatian Audiovisual Center
Producers encountering a problem with a co-producer expect their funds “to arbitrate”. It can be especially difficult when the national producer is the one who is behaving badly. They currently have a never-ending story with a short animation movie between Italy and Croatia. The Croatians lied to the Italians about the amount they got from the fund, and the Italians found out.

Eurimages
Unfortunately they face legal issues in co-productions and some of them will last forever. Eurimages suspends the funding until the final decision at the court, but with all the appeals the process is never ending. And sometimes the laws are different in co-producing countries. They discourage producers from arbitration.

Luxembourg Film Fund
Once they encountered a cash-flow problem with a project during production. Although Luxembourg is a financial centre, there were no banks that dealt with film financing. The producers eventually resolved the cash-flow issues with the help of Coficine/Cofiloisirs.

Norwegian Film Institute
They receive a lot of project with high budgets, or with complex financing plans, or from companies that are not that strong. Cash-flow problems are never generated by the funds, because funds make advance payments. The problem appears with overspend, because in such cases, it is very difficult for the fund to increase the support. Thus, they require that producers sign special agreements beforehand, undertaking that they would finance overspend.

Conclusions and challenges

International co-productions, Development, Gender and quotas

Illustrations by Gijs van der Lelij

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