One of Britain's leading independent film and video companies, the firm was responsible for films including Mona Lisa and The Company of Wolves.
The investment decision follows a recent creditors' meeting at which PolyGram and virtually all Palace's other creditors agreed to put it into liquidation.
The decision had been delayed because the receivers had hoped to sell Palace's video arm to a City syndicate. But the distributors that owned the rights to the films refused to co-operate because they felt the buyers lacked both credibility and cash, and the deal fell through.
Last week, PolyGram spent dollars 35m acquiring a 51 per cent interest in Interscope, a Hollywood film production company. The purchase was part of an ambitious scheme to become a major force in film-making.
PolyGram prefers to work through independent film-makers. Last year it took control of Propaganda Films, which made In Bed with Madonna, and Working Title, which made My Beautiful Laundrette.
The company's investment in Powell and Woolley will be through Matawa Films, which has three films scheduled for production in the near future: Wasteland, Dust Devil and Soldier's Wife.Reuse content