That is the advice of lawyer Tony Griffiths, who says that Royal Institute of Chartered Surveyors bye-laws forbid vendors’ assets being lumped in with those of member auction houses, thereby protecting them from being made available to other creditors as part of any settlement.
Mr Griffiths, of the law firm Nicholson Graham & Jones, made his remarks in an article for The Arts Surveyor, the in-house magazine for the Antiques and Fine Arts faculty of the RICS. His advice comes in the wake of problems faced by vendors following the ceasing of trading at a subsidiary of Coys, one of London’s oldest auction houses, at the beginning of this year.
The vendors in question had consigned valuable classic cars to a December auction only to see the company cease trading after the sale, but before they had been paid out. Because their money had not been kept in a separate account to the company’s own assets, they have now been included in the assessment of the assets available to pay off creditors in general. In addition, the vendors count as unsecured creditors, and so will have to wait until the secured credit has been paid off first.
Under these circumstances, Coys made an offer of just under 24p in the pound to the vendors. The vendors were warned that if they refused it, the company was likely to close, possibly leaving them with nothing.
Under RICS rules, this would not happen as auction houses must hold clients’ money in a separate client account and they must have a client’s money protection scheme in place. As Mr Griffiths explained, subject to policy conditions, this scheme will meet a claim up to a maximum of £35,000.
Mr Griffiths further advises that some case law suggests that in addition to setting up the client account, auction houses and clients should make clear the purpose for doing so.
Steven Denley-Hill, chief executive of the National Association of Valuers and Auctioneers, has already called for a change in the law to force all auction houses to obey such rules, which his organisation also enforces.
Separate client accounts are a must for vendors, says lawyer
VENDORS wishing to protect their interests when an auction house becomes insolvent should use firms where at least one of the partners or directors is a member of the RICS.
