Seventeen months after Kew Media Group (KMG) officially collapsed and was placed into receivership, the company’s messy unraveling continues to be the subject of legal disputes.

Documents filed earlier this month revealed that KMG, through its receivership company FTI Consulting, has filed a lawsuit against KMG’s former auditor, Grant Thornton LLP.

The auditing company conducted financial audits for KMG when it traded on the TSX from 2017 until early 2020, at which time Grant Thornton LLP withdrew the reports as a “result of the actions” of KMG’s former CFO Geoff Webb and its “inability to rely on representations he made to Grant Thornton in the course of its audits and review of KMG’s financial statements.”

In the suit, filed with the Ontario Superior Court of Justice, KMG says the auditing company “ought to have detected and disclosed the misstatements contained in [KMG’s] books, records, and financial reporting.”

KMG is seeking $100 million in damages suffered “on account of Grant Thornton’s failure to detect the problems with KMG’s financial reporting and the resulting provision of inaccurate financial information to KMG’s stakeholders,” according to the documents.

“Had the Defendants acted in accordance with their duties and the applicable standard of care, the financial and other compliance irregularities would have been uncovered and disclosed, and [KMG] would have adopted a different business strategy, refrained from assuming further onerous liabilities, would not have become insolvent, and would have avoided claims now being asserted by shareholders and other creditors of the Plaintiffs,” alleges KMG, which has been controlled by FTI since the resignation of all KMG’s directors in February 2020. A request for comment from Grant Thornton had not been returned at press time.

In addition to the lawsuit against Grant Thornton LLP, the documents revealed that the securities class action lawsuit being brought against KMG, filed last summer, is continuing to make progress.

The suit, which is led by a pair of former shareholders, Alex Kan and Stuart Rath, alleges that KMG failed to “properly manage and disclose fundamentally material information.”

According to the initial claim, Toronto-based Kan purchased 1,600 KMG shares on the Toronto Stock Exchange (TSX), while Nova Scotia-base Rath purchased 30,000 shares. Both owned these shares until the company was delisted from the TSX earlier this year.

Initially, the suit was named former directors Steven Silver (founder and CEO), Peter Sussman (founder and chairman), Geoffrey Webb (CFO), David Fleck, Maurice Kagan, Patrice Merrin and Erick Kwak. However, the class action now only names Silver and Webb, with the remaining directors being removed.

While KMG is insolvent and all funds gathered from the sale of its assets has been repaid to its secured creditors, plaintiffs in the class action suit say that any proceeds recovered would be funded from “multiple layers” of directors and officers insurance (D&O insurance) held by KMG. D&O insurance liability insurance protects directors and officers from personal financial loss that may result from allegations and lawsuits of wrongful acts or mismanagement carried out in their appointed capacity.

Following KMG’s collapse, court documents revealed the company’s debts to a syndicate of lenders led by Truist Bank were around US$113 million. After selling off various Kew-owned assets, there were still outstanding debts in excess of US$90 million.

Publicly traded Kew’s financial issues had first come to light in November 2019, when a Q3 report revealed a 5.3% dip in overall revenue. Three weeks later, the company announced a strategic review to examine options such as selling all or parts of the business. At the same time as announcing the review, KMG claimed it had learned that certain reports provided by CFO Geoff Webb to the company and its senior lenders “contained inaccurate information regarding working capital.”

In early 2020, knowing that the production and distribution group was going down, its subsidiaries – which included Canadian firms BGM, Architect Films, Media Headquarters Film and Television, Sienna Films, Architect Films, Our House Media, and U.K. distributor TCB Media Rights – raced to extricate themselves from the collapsing parent company.

All of the Canadian companies formerly owned by KMG have since found new ownership or have been acquired by their founders.

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