Local laws covering insolvency in New York – and many other parts of the United States – mean that owners could lose the rights to works they have consigned as dealers’ creditors put in claims, warns Judith Bresler of specialist law firm Withers Worldwide.
Her advice comes as administrators put in a final call for those owed money or works by New York dealership Salander-O’Reilly to come forward. The deadline is 5pm EST on June 15.
Ms Bresler explains that even if art owners think they are merely handing over a work for a dealer to sell on commission, New York’s Uniform Commercial Code (UCC) gives the artwork the status of secured credit for the dealer.
“Collectors often do not realise that under the UCC, the mere delivery of an artwork to a dealer may imbue the dealer’s secured creditors with rights on the artwork superior to those of the collector himself,” said Ms Bresler. Now she has come up with a seven-point document to help collectors avoid this risk. It involves the drawing up of a signed agreement setting out the parameters of the consignment, addressing, among other provisions, the following terms:
• The establishment of the principal-agent relationship authorising the dealer to complete the sale of work or works on the client’s behalf within a specified time frame and territory.
• The sale price of each work.
• The amount of sales commission payable to the dealer.
• Warranties by you, the seller, of clear and marketable title to the work.
• Allocation of expenses, between you and the dealer, for the art’s shipment, packing, insurance, advertising, condition reports and related matters.
• Terms of payment from the buyer.
• The granting by the dealer to you, the seller, of security interest in each of the artworks you consign to the dealer.
This last point is particularly important in the avoidance of title loss to a dealer’s creditors.
Ms Bresler explains: “Specifically, the consignment agreement should provide that the dealer grants you, the owner, a security interest in each work of art you consign (and any proceeds thereof) until the artwork is sold, at which point the resultant sale proceeds are held by the dealer on your behalf and delivered to you (minus the dealer’s sales commission) as specified in your agreement.”
Crucially, adds Ms Bresler, the agreement should provide for the dealer to authorise the seller, upon completion of the sale, to fill in a Form UCC-1 Financing Statement without the dealer’s signature. By submitting this form, the owner serves notice to the public of their (the owner’s) security interest in the art, protecting those rights under the UCC in the event that the dealer defaults on the consignment agreement.
Further protection can be obtained under the agreement by ensuring that the dealer informs any creditor and buyer of the consignor’s security interest in the work or works and the resultant proceeds.
The dealer can protect their interest by getting the consignor to fill in a Form UCC-3 terminating their security interest once they have received all due proceeds.
Ms Bresler advises that the UCC forms are standard issue and can be filled out by law firms on behalf of consignors or by the consignors themselves.
The relevant forms are available to buy online by logging onto: www.blumberg.com/forms/uccletter.html
Ms Bresler, of Withers Worldwide’s art and cultural assets team, is based in New York and can be contacted at: Judith.bresler@withersworldwide.com
