An online film company backed by nearly £700,000 of public money has gone into administration after failing to attract private investment.

Glasgow-based Distrify Ltd also failed to pay all its taxes and a string of creditors, including culture quango Creative Scotland, are owed nearly £140,000.

However, the company has now been sold to a new outfit run by two of the original directors in a "pre pack" sale.

Distrify was set up in 2010 to develop a "distribution platform" for filmmakers, producers and rights holders to upload and share their content online.

The initial directors were Peter Gerard, David Wilkinson and twins Andrew and Stephen Green, but Gerard quit in May.

Between 2012 and 2014, Scottish Enterprise provided the firm with around £100,000, including strategic and market development support.

Part of the package included £45,426 for an "export explorer" grant and £38,493 from an innovation pot.

Creative Scotland, which supports the arts, film and other sectors in the industry, also awarded Distrify around £100,000.

It approved £60,000 for "product and service growth" and £26,500 for work on a Scottish Film Collection website.

The quango also paid for Distrify figures to attend the Cannes Film Festival last year, to "announce a significant partnership with a major Chinese distributor".

A European Commission-funded programme, Creative Europe (CE), awarded around €680,000, the equivalent of nearly £500,000.

Around €250,000 of the EU money was accessed by the firm.

However, despite the generous levels of public funding, the firm flopped and went into administration on Christmas Eve.

In the "background" section of the administrators report, it was noted that the company only had enough money to "pay salaries and has not managed to raise any investment".

Potential investors had been interested, but did not shell out due to "legacy issues" that made Distrify an "unattractive investment opportunity".

The directors advised that these matters included a failure to demonstrate growth over the past 12 months, the poor state of the existing technology, and a "reputational legacy" with HMRC following fines due to the non-payment of VAT.

The report also noted claims of damage to the firm's brand image after a rival claimed he was the inventor of the company's product, a claim Distrify disputed.

The biggest creditor listed is Creative Scotland, which lent Distrify £70,000.

Although it, a deal allowing the company to be sold to a similarly-named firm, Distrify Media, was approved on the same day as the administrators were appointed.

The Green brothers are listed as the shareholders of the new company.

The Creative Scotland debt will transfer to Distrify Media, but the £27,212 due to HMRC remains the responsibility of the firm in administration.

Scottish Tory culture spokesman Liz Smith said: "Lessons have to be learned from this episode. There is a huge issue just now about transparency of funding in the culture sector."

A spokesperson for Distrify described the pre-pack sale as a "corporate restructuring procedure", adding: "Distrify is a Scottish global success story - 90% of our business comes from outside the UK. Restructuring was necessary in December 2014 to address cash-flow issues caused by clients not paying sums owed to us. The management team has rescued the business as a going concern and ensured there are no redundancies. No creditors will be left out of pocket."

A Scottish Enterprise spokeswoman said: "We were disappointed by the news of the administration of Distrify and have since been notified that none of the five employees will face redundancy. There is always a degree of risk in offering support for new companies, all support is subject to rigorous internal and external audit and due diligence."

A Creative Scotland spokesperson, said: "Creative Scotland's funding for Distrify has helped support ongoing employment for five staff working in the creative industries while the company has, in turn, supported the work of many independent filmmakers and exhibitors in Scotland and internationally."