Dealers May Lose Out In Berry-Hill Bankruptcy
Date: 22 Jul 2006 | | Views: 6641
Firms owed money before gallery filed for protection from creditors may not be paid
NEW YORK - Dealers whose pictures were consigned to and sold by Berry-Hill Galleries before it filed for bankruptcy, risk losing the proceeds from their sale, unless Berry-Hill can raise enough money to make a first payment to its secured creditor by 2 August. The amount of money they will get back is uncertain. Dealers whose consigned work is sold by Berry-Hill after the bankruptcy filing are not affected, and will receive any money due to them.
Berry-Hill Galleries filed for voluntary bankruptcy under Chapter 11 (protection from creditors) in December 2005, after being accused of trying to inflate the value of their art (The Art Newspaper, November 2005, p51). In the bankruptcy case, Berry-Hill’s debt to its secured creditor, ACG, a company that lends against art, was approximately $18.5m as of 31 May. The gallery’s inability to pay off the ACG debt last year was why it filed for Chapter 11 protection.
Berry-Hill is now trying to raise money by selling its Manhattan space, according to court papers dated 30 May filed by the gallery. It has also been negotiating bulk sales of its stock to an institution.
As a secured creditor, ACG has a claim on all Berry-Hill’s assets, including its cash. In February, Judge Robert Gerber, of the Bankruptcy Court in New York, ruled that until full repayment of the debt, Berry-Hill is to pay ACG 50% of the net profits of any post-bankruptcy consignment sales, after the consignors have been paid.
But dealers whose consigned works sold before Berry-Hill Galleries filed for bankruptcy, have discovered to their dismay that the sales proceeds are now assets of the bankruptcy estates, subject to all creditors’ claims.
The London-based firm Timothy Sammons gave Berry-Hill a watercolour, which the gallery sold shortly before filing for bankruptcy, for which Sammons was never paid. Sammons told a court that Berry-Hill should not use the proceeds of the sale to solve its “short-term liquidity crunch” at Sammons’ expense.
In a separate case, Florida dealer Robert Mann said he loaned a drawing by George Bellows to Berry-Hill, but had never reached a consignment arrangement. Berry-Hill sold the work three weeks before the bankruptcy filing, in violation of an “exhibition agreement,” Mr Mann claims.
According to Berry-Hill, as a result of the Chapter 11 filing, the law prohibits return of the proceeds to Sammons, which is only a general unsecured creditor. Berry-Hill also disputes Mr Mann’s claim, saying that the firm was allowed to sell the work. But both Sammons and Mr Mann were, Berry-Hill said, “essential creditors” owed $1.6m, and $1.25m respectively. Berry-Hill proposed paying each $100,000 a month. But the court has not authorised either of these payments.
By Martha Lufkin, The Art Newspaper