This week's Irish release of Space Truckers brings to an end one chapter in a long-running scandal which has cast a shadow over the much-vaunted Irish film production boom of recent years. However, it is highly unlikely that the book has yet been closed on the controversial activities of the film's first Irish producer, Mary Breen-Farrelly, and her partner John Avery. The consequences of their activities are still the subject of legal wrangling between the Revenue

Commissioners and Section 35 investors, while the Space Truckers debacle reflects little credit on the (then) Department of Arts, Culture and the

Gaeltacht, and its administration of Section 35 tax incentives.

Section 35 is designed to encourage investment in films made in Ireland, employing Irish technicians and using Irish services. Investors can write off the tax payable on income which they invest in a film project certified by the

Department of Arts, Culture and the Gaeltacht. In theory, this tax benefit compensates the investor for the high risks involved in investing in the movie business. In practice, however, the Section 35 investor is very rarely exposed to any significant risk. Convoluted mechanisms ensure that the tax shelter is shared between the investor, the broker and the film production company.

Therefore, although the legislation allows for up to 60 per cent of a film's budget to be raised through Section 35, the actual effective benefit of a

Section 35 certificate to a production is approximately 12 per cent.

This is the approach taken by the vast majority of film producers in Ireland when raising money on a Section 35 certificate, and means that the investors rarely have more than an academic interest in whether or not the film is a success at the box office. With Space Truckers, though, producer Mary Breen-

Farrelly offered the opportunity for a real risk investment in what seemed a highly attractive and commercial prospect: a comedy sci-fi epic starring Dennis

Hopper. Some investors took the bait; their ensuing experiences read like an object lesson in why you should only invest in the movie business if you know what you're doing.

In 1995, coverage of Ireland's booming film industry was at its height in the

Irish and British media, but the collapse of the Marlon Brando film, Divine

Rapture, in the early summer caused the first ripples of unease. Ironically,

Divine Rapture was a textbook example of Section 35 working properly for its investors; no Irish money had been released to the production before the collapse, which had nothing to do with the Irish elements of the film. While the investors lost their tax shelter, their actual investment was never at risk. It was the first bad publicity that the new incentives had received, but it paled into insignificance beside what was to happen on Space Truckers.

At a press conference in May 1992 in the Conrad Hotel, the Irish media had been informed in a press release that: "Over 600 new jobs could be created by

Mary Breen-Farrelly Productions over the next three years, following this week's launch in Dublin of a £70 million film production package that offers a unique investment opportunity which will revitalise the ailing Irish film industry." Originally from Kimmage in Dublin, Breen-Farrelly had worked overseas for 20 years in the accounts department of various film production companies. Her attempts to get film projects off the ground in the UK with her partner, John Avery, had been unsuccessful, and she had arrived in Ireland after settling bankruptcy proceedings brought against her by Shepperton Studios in

London. The £70 million never materialised but, by 1994, she was availing of the newly-liberalised Section 35 incentives on offer from the

Department of Arts, Culture and the Gaeltacht to finance a biblical animation series, The Sign of the Fish. When the American producer, Peter Newman, was looking for a location to shoot his science-fiction movie, Space Truckers,

Breen-Farrelly assured him she could raise over £7 million through

Section 35 if he shot in Ireland in the late summer of 1995.

A glowing prospectus issued to potential Irish investors announced that another Breen-Farrelly production, the low-budget drama Driftwood, which had been shot in early 1995, "was already in profit". In fact the film was in limbo, stalled in post-production for lack of funds. "She waxed lyrical about how she was going to bring Space Truckers successfully to markets all over the world,"

says James Bowen, an investment manager who raised funds on the basis of that prospectus.

However, by July, only £4.1 million had been raised, by which stage

Space Truckers was in full pre-production at Ardmore Studios at a cost of

£500,000 per week. Very unusually, this money was released to the production company, Deadwood II Ltd, by William Fry Solicitors, the solicitors to the fund-raising, before the full £7 million was achieved. Soon it became apparent that there were significant problems with Space Truckers' cash flow. With the film on the verge of collapse, the former Minister for Arts,

Culture and the Gaeltacht, Michael D. Higgins, called in the producer, Morgan

O'Sullivan, an expert in operating Section 35, along with a representative of

ACC Bank and the entertainment lawyer James Hickey, to put together a rescue package. Breen-Farrelly resigned as Irish producer of the film, and was barred from the set and production offices (although she still retains a credit at the beginning of the movie). O'Sullivan took over as producer, and a second Section

35 certificate was issued - the only time this has ever happened.

Of the £4.1 million belonging to the original investors, ACC Bank found that only £1.5 million had been spent on Space Truckers by Breen-

Farrelly, so what had happened to the other £2.6 million? The understandably concerned investors commissioned investigative accountants

Donnelly Gleeson to compile a report on the companies operated by BreenFarrelly and Avery.

This report indicated that breaches of Section 35 regulations, and possible breaches of the Companies Act, had taken place. £850,000 of Space

Truckers money had been invested in Driftwood, and another £250,000 in

Sign of the Fish (which also ultimately collapsed; among those who lost money was the Irish Bishops' Commission on Emigration, which had invested £

200,000.)

More than £1 million was simply not accounted for, but it was difficult to ignore Breen-Farrelly's taste for extravagant gestures. At the 1995

Cannes Film Festival, she had hosted the Moving Pictures magazine champagne party for 2,000 people. At the same time, she took out eight full pages of advertising in the trade publication Screen International. Other expenses included a £680 per night suite at the Carlton Hotel in Cannes and, more prosaically, a forfeited £100,000 deposit on an industrial premises in

Bray. For the original investors in Space Truckers, the prospect now is that not only will they probably lose their original investment, but that they are liable for tax on the percentage of their money which was not spent on the movie, under the terms of the certificate. Already pushed to the back of the queue for potential profits on the film, they now find that the Revenue

Commissioners will only allow Section 35 status to slightly over 50 per cent of their investment (one of the many sub-plots of this story is the Revenue's deep distaste for Section 35 in all its forms).

The situation is further complicated by the involvement of the British company, Goldcrest, which bought into the project when it was in danger of collapsing completely. There is now a conflict between Goldcrest and the

American producers, which has prevented an American release for the film so far.

All these factors ensure that it is highly unlikely the investors in the first certificate will ever see any potential returns. "I think that the film has to be an above-average success, under the terms of the agreement, for us to see something back," agrees James Bowen, who blames the Department of Arts, Culture and the Gaeltacht, and rejects the suggestion that it was the investors'

responsibility to ensure that their money was safe. "There was a lack of supervision and regulatory controls. They issued five separate certificates to her, and she never produced one film. It beats me completely how they could have fallen for that; they continued to give her more and more, when they should have been shutting her down."

There may well be some red faces in the Department over the entire affair.

Certainly, up until the middle of 1995, the relationship between Breen-Farrelly and the Department was very cordial: three weeks before the Section 35

certificate for Space Truckers was issued, the Minister's programme manager,

Kevin O'Driscoll, travelled to Hollywood with BreenFarrelly on an all-expenses-

paid trip. Perhaps the most astonishing aspect of the whole affair is that on

August 25th, 1995, just one week after she had been so unceremoniously ejected from Space Truckers, the Department issued another certificate to Breen-

Farrelly for a £2.7 million film called Feeney's Rainbow, which collapsed in early September. Mary Breen-Farrelly was impossible to contact for this article, but many aspects of the Space Truckers saga remain unresolved.

James Bowen is in no doubt, though, about what needs to be done. "Mr Higgins stated clearly at the time that he would call in the Fraud Squad, if that was appropriate. If there have been breaches of the Companies Act, then those breaches must be pursued."