MONTREAL — Right in the middle of working on a $1-million post-production job for Red Cliff: Part II, the sequel to John Woo’s third-century Chinese epic Red Cliff: Part I, post shop damnfx has officially shut its doors, leaving a trail of unemployed workers.

‘We’re out of operation,’ former president and company founder Martin Leduc tells Playback. ‘The company won’t be able to pay the employees.’

At the end of September, Leduc’s workers were told that Montreal-based Fake Studio/Camera-e-Motion would take over the Woo project. (Leduc is now employed by Fake.)

Fake’s president and founder, MIT-educated robotic engineer Marc Côté, 37, says he wanted to save Montreal’s reputation as a post-production center by purchasing damnfx, but the bank wouldn’t provide him with sufficient financing. Instead, according to Côté, his company worked out a deal with its main creditor, the Royal Bank of Canada, and Nex Capital – which owned much of the hardware – to transfer damnfx’s equipment to Fake so it could complete the Woo film.

The project was completed in October and is reportedly slated to hit Asian screens early in the new year.

It was only back in March that Montreal rival Meteor Studios declared bankruptcy, owing $600,000 in wages to its employees. As in the Meteor case, damnfx’s situation suggests a growing industry trend whereby struggling post shops take on major contracts and then can’t meet payroll. It also calls into question FX artists’ ability to protect themselves in such instances.

‘It’s super-bad for Montreal’s reputation. I was trying to prevent another Meteor Studios. I was trying to make sure the workers would get paid,’ says Côté.

Unlike Meteor, however, damnfx didn’t declare bankruptcy – it simply closed shop.

‘We wanted to declare bankruptcy but we couldn’t. The bank wouldn’t let us,’ explains Leduc at a café in Montreal’s Mile-end district. ‘In order to file for bankruptcy, a trustee must be hired at a cost of $15,000 to $25,000. We couldn’t pay that amount. And the bank wouldn’t guarantee us.’

Leduc, now 35, founded his company in 2001 at the age of 27. He says he has declared personal bankruptcy, as he owes upwards of $1 million to creditors, including federal and provincial tax authorities.

According to court documents, damnfx was placed under interim receivership Sept. 30. Court-appointed trustee Pierre Guay Syndic has seized the company’s financial and legal documents. 

As the interim receiver, PGS was hired for the specific task of retrieving documents for RBC so the bank could obtain the Quebec and Canadian tax-credit refunds for which damnfx is eligible.

As the FX industry is small, most of the former damnfx employees who spoke to Playback refused to go on the record. They recall that many staffers stayed on despite the company regularly having problems meeting its payroll.

‘[Management] told us we would eventually be paid, so we kept working,’ says François Schneider, a former damnfx technical director who now works at new Montreal FX firm New Breed Visual Effects.

Another employee recalls: ‘They appealed to us to stick around. They said, ‘We have to get this project out. Our reputation is at stake. Please stay.’ And of course we thought if the project gets sent out and finished, we will get the money.’

In his defense, Leduc says, ‘I was optimistic. I thought there were solutions. We were honest with employees, but the circumstances changed.’

The four former damnfx employees who spoke to Playback have filed a complaint with the Commission des normes du travail, a Quebec government agency that reports to the minister of labor and was set up to promote fair and balanced relations between employers and employees in compliance with the 1980 act respecting labor standards.

Dave Rand, an American and one of the former lead FX artists at Meteor, and who was also CG supervisor at damnfx until last January, believes Montreal is risking losing its local talent pool – and therefore its ability to provide quality product.

‘I think Montreal has been tarnished as a place to work. It’s already hard to find the talent necessary to do this work. Now it’s going to be even harder,’ says Rand, who is now based in Los Angeles.

Rand believes that Montreal companies are experiencing financial difficulties because they are underbidding on contracts in order to attract big-name clients. He also believes FX talent is vulnerable because artists aren’t represented by any labor or professional organization.

‘We aren’t unionized worldwide,’ he points out. ‘We are at the bottom of the list. We are being treated like actors and other talent used to be treated decades ago.’

Côté says he’s seen a number of Montreal-based FX companies fail because they don’t have solid business plans and good administrators.

‘I think people think they know how to run a business and they don’t,’ says Côté, whose company recently completed post-production work on C.R.A.Z.Y. helmer Jean-Marc Vallée’s The Young Victoria, produced by Martin Scorsese.

In the case of damnfx, the shop rapidly grew from a two-person operation in 2001 to one that employed 30 people in 2003, and 130 by 2007.

Leduc blames three factors for the demise of his company: keeping on too many employees, a slow six months prior to obtaining the Woo contract, and the company’s failure to apply for tax-credit money.

‘I feel responsible,’ he says. ‘I know most of the employees. But the money just wasn’t available.’